What happened
Shares of Sohu.com (SOHU +0.56%) were climbing on a report that Tencent (TCEHY 3.71%) was set to complete its acquisition of Sogou. This will pave the way for a payday for Sohu.com, the Chinese online media company that owns a third of Sogou.
As of 1:05 p.m. EDT, the stock was up 13.6%.
Image source: Getty Images.
So what
According to an exclusive report from Reuters, China's antitrust regulator had cleared the way for Tencent to complete its acquisition of Sogou, China's No. 3 search engine. Prior to the agreement to acquire all of Sogou, Tencent had controlled 39.5% of the business. Sohu.com owns a third of the business and will receive $1.16 billion in the buyout, a significant payout for Sohu, as its market cap is currently just $745 million.
The deal had been in doubt after the antitrust regulator, State Administration of Market Regulation (SAMR), had cracked down on tech giants like Alibaba, signaling a tougher stance against market concentration in the tech and online-media sectors. The regulator is even forcing Alibaba to sell off some of its media assets, but it cleared the Tencent-Sogou deal, as long as Tencent sets up a monitor to ensure data security.
Now what
Excluding Sogou, Sohu is a fast-growing business, coming off a quarter where it posted 34% revenue growth to $253 million, driven by its online gaming business, where revenue grew 49% to $196 million. On the bottom line, the company posted adjusted earnings per share of $1.33, making the stock look dirt cheap as shares are still less than $20.
Sohu also looks poised to benefit from the general antitrust pressure on tech giants like Alibaba, which should help even the playing field for small-cap Chinese tech stocks, and the cash infusion of $1.16 billion should only boost its prospects.
If Sohu can keep up its performance from the fourth quarter, the stock should move higher from here.
