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Local Government Filing Indicates Qihoo Deal Trundling Toward Completion

|Includes: HMIN, QIHOO 360 Technology Co. Ltd. (QIHU), YY

I previously wrote about how an opportunity had been created by misinterpreted news regarding the QIHU buyout here and here .

New evidence from a local government filing in China suggests that the buyout is trundling toward completion. One of the investment vehicles for the buyout is domiciled in Tianjin. A recent filing on a Tianjin government website shows that the buyout group pledged shares on June 7th and 8th to obtain a bridge loan from China Merchants Bank.

The filing mentions the names of the investment consortium and their shareholding in the investment vehicle: Zhou Hongyi 17.4%, Sequoia 8.8%, Bric silk road 3.3%, Sun Life insurance 2.2% etc. It also explicitly mentions China Merchants Bank Co., Ltd. Shenzhen Branch as the entity to which the investors have pledged their shares in order to secure the loan.

To read the filing on the Tianjin local government website using Google Translate click here and then select the link at the top for 'Equity pledge registration information' at the top:

If you have difficulty viewing with Google Translate, here's a screenshot:

This link will help to put the above into context: It says China Merchants Bank is providing a $3.4 bridge loan for the deal. It also mentions the investment consortium members who are listed in the Tianjin government filing mentioned above.

While it would have been nice to see the deal close on the 15th, it is entirely possible that was the date for the currency conversion (mentioned in my previous article) and that the closing will happen in the next few days. Generally when these deals close (e.g. HMIN) there is no official news for a while. Then an announcement gets posted that the deal has closed and investors get paid a few days later.

The stock fell a little over the last few days, perhaps due to knock-on concerns about the YY deal being announced as halted. However that was a totally different scenario. Unlike Qihoo 360, a definitive agreement had not been reached. As noted in my previous articles, the definitive agreement at Qihoo gives management an enormous incentive to complete the deal - both in the form of termination fees if the deal doesn't complete and equity grants if it does close.

Disclosure: I am/we are long QIHU.