Sina Board Shrinks, Sale Ahead?

| About: Sina Corporation (SINA)

Summary

Sina's latest board reduction looks like a strategic move by CEO Charles Chao as he prepares a sale that will give him a major position at his company post-merger.

E-commerce giant Alibaba is the most likely candidate.

With just five members left on the board, Chao would only need two to agree with him to approve a deal that he would personally negotiate.

Bottom line: Sina's (NASDAQ:SINA) latest board reduction to just five members looks like a strategic move by Chairman and CEO Charles Chao as he prepares a sale that will give him a major executive position at his company post-merger.

The share price isn't the only thing shrinking these days at leading web portal Sina. The board of one of China's oldest Internet companies also has just undergone a major reduction, with two of its seven members leaving without any sign of replacements. I'm not extremely familiar with Sina's board and its dynamics, but it does seem like five members is quite small for a company of Sina's size and could reflect a power play by longtime Chairman and CEO Charles Chao.

Such a play could be prelude to the sale of Sina to a rival, with e-commerce giant Alibaba (NYSE:BABA) as the most likely candidate. I've been predicting such a sale for a while now, and this latest move looks like the latest signal that Chao could be clearing out board members who might oppose such a deal. With just five members left on the board, Chao would only need two to agree with him to approve a deal that he would personally negotiate.

All that said, let's review the latest announcement from Sina, whose market value has sagged in the start of 2016, in tandem with China's own crumbling domestic stock markets. The company's shares lost more than 11 percent of their value between the Christmas holiday and the latest session in New York, leaving the company with a market value of just over $3 billion.

The latest announcement comes with very little explanation besides the actual board changes. It says that two long-time board members, Pehong Chen and Lip-Bu Tan, have resigned from Sina's seven-member board (company announcement, Chinese article). Chen resigned to take up a new position at social networking site Weibo (NASDAQ:WB), which is controlled by Sina, while Tan has simply resigned for unspecified personal reasons.

Both men had served on Sina's board since 1999, which makes the simultaneous timing of their departure seem like a calculated move rather than coincidence. The most likely person engineering such a move would be Chao, who remains firmly in control of Sina and will now head the company's new five-member board. There's no indication in the announcement that Sina plans to fill the two board seats that have just been vacated. And of the five remaining board members, Chao is the only one who is a Sina executive, with the others classified as independents.

Too Much Independence?

All that brings us back to my earlier assessment that perhaps Chen and Tan were just a bit too independent to support a sale of Sina that I think might be coming. Such a sale would make sense in the current climate, which has seen Sina get overtaken in recent years by younger but better-run and more aggressive companies like Alibaba, Baidu (NASDAQ:BIDU) and Tencent (OTCPK:TCEHY).

Sina already has a close relationship with Alibaba through their co-ownership of Weibo, following a major equity tie-up between the pair a couple of years ago. What's more, Chao is probably looking at the recent sale of leading online video company Youku Tudou (NYSE:YOKU) to Alibaba as a template for what he would like to do. That deal saw Alibaba pay a big premium for Youku Tudou late last year, in a deal that left Youku Tudou founder Victor Koo firmly in charge of his former company.

There aren't any particular synergies between Alibaba and Sina since the two operate in very different Internet spaces. But that has never been a problem for Alibaba's acquisitive founder Jack Ma, who has billions of dollars in cash and is willing to buy just about anything Internet-related.

A Sina purchase also would make Alibaba the controlling shareholder of Weibo, giving it a firm foothold in the crucial social networking arena where Alibaba is playing catch-up with Tencent. At the end of the day, this kind of move seems like the latest signal that Sina's days as an independent entity are numbered, and Alibaba or another buyer could make a bid for the company by the middle of this year.

Disclosure: None.