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Changyou: Is The Dividend A Catalyst For A Buyout?

Apr. 11, 2018 6:26 PM ETChangyou.com Limited (CYOU)SOHU27 Comments
Chaox Investing profile picture
Chaox Investing


  • Plenty of cash and low valuation.
  • Special dividend of $9.4/ADS announced on 4/5/2018 could be a hint of a coming buyout.
  • Even without a buyout, post-dividend P/E will be very low compared to peers.

Changyou (NASDAQ:CYOU) is a Chinese game company with a relatively low valuation, a lot of cash, and a potential buyout from the chairman, Charles Zhang. The chairman, who is also in charge of Chinese internet company Sohu (SOHU), has sent a letter on 2/1/2018 reaffirming his desire to buy the company at $42.10/ADS following his original letter on 5/22/2017. After missing guidance in the Q4 2017 earnings release, the stock sold off and languished in a range between about $27 and $29 per ADS until 4/5/2018, when the announcement of a special dividend of $9.4/ADS pushed it out of the range to about $30/ADS.

Such a large special dividend is a bit unusual. I can think of three reasons for it (all of which are bullish):

  1. The controlling shareholder, SOHU, needs cash.
  2. Taking out excess cash makes the valuation look more attractive to Wall Street.
  3. The buyout of CYOU is coming soon.

For more background, readers might want to read some of the recent articles by Seeking Alpha contributor John Sheehy.


Before getting excited, it's worth outlining some potential risks:

  1. Concentration risk - CYOU is a Chinese company majority owned by SOHU, with Charles Zhang as the controlling shareholder of both.
  2. Complexity risk - Due to Chinese laws about ownership of media companies, CYOU doesn't technically own its subsidiaries but has a complicated legal arrangement which gives it "effective control." See the section on "VIE-Related Risks" in SOHU's 2017 10-K.

So we are talking about investing in a company where one person has majority control via a complicated legal arrangement in China and may be planning to take the company private with a low-ball offer. This should worry you. It worries me.

On the other hand, if you are trying to buy stocks for less than they are

This article was written by

Chaox Investing profile picture
Trader interested in special situations and event driven ideas. Previously worked at and traded for a large institution. Now focused on research, ideas, and trading methods which are profitable but difficult for institutions to follow because of career risk.

Analyst’s Disclosure: I am/we are long CYOU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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