|Shares Out. (in M):||53||P/E||3||3|
|Market Cap (in $M):||533||P/FCF||2||2|
|Net Debt (in $M):||-212||EBIT||0||0|
On 9th Sep 2019, Sohu (majority shareholder) initiated a go-private transaction. Current offer price USD 10 per ADS; purchase price 8.9; 12.3% upside. 69% above the pre-announcement trading price of USD 5.9 per share. All Cash Deal. CYOU will be delisted. I think it is very highly probable that this deal will be completed in 6-9 months.
Sohu is a majority shareholder with 90+% voting control and 68% ownership. Free float: 32% or USD 164m.
Before the privatisation offer on Sep 2019, Changyou was trading ~USD 320m market cap with USD 212m of cash and generating USD 150m of free cash flow (FCF) in 2019.
CYOU is a game company that is famous for Tian Long Ba Bu (TLBB). TLBB is a MMORPG game with 1 PC version and 2 mobile version. The PC game is operating for 12 years now. The online game revenue model is subscription model rather than one-off game purchase. CYOU also has a small cinema advertising business which went bankrupt earlier this year. It should be out of the CYOU by end of 3Q 2019. So CYOU is a pure online game company going forward.
Online game business generated around USD 391m in LTM 2019 and around USD 150m of normalised net profit on a very conservative basis. I think going forward it is likely to generate USD 100m in FY 2019 and maybe decline around 10% a year after that. These long lifecycle games have incredible strength. I won't be surprised if CYOU is able to sustain the online game rev around USD 350m level.
So based on the takeover price of USD 10 per ADS, the market cap is USD 532.5m and EV around USD 320m. So Sohu is paying a 2-3x multiple for the game business.
Note that Chairman / founder Zhang offered to take the company private in May 2017 on a personal level. Would have needed to come up with USD 2.2bn at USD 42.1 offer price. The EV at that time is around USD 1bn and the implied multiple was 5x.
Why didn’t that deal work out the first time?
Why the deal would pass this time?
Timing of completion