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Why JOYY Stock Is Zooming Higher Today

What happened

Shares of JOYY (NASDAQ: YY) were joyfully higher on Thursday, following a media report that the Chinese social media company could be taken private soon with a rich valuation. After a sizable pop, the stock fell some distance but was still up by nearly 5% in mid-afternoon trading.

So what

That morning, Reuters published an exclusive report that cited "three people with knowledge of the matter," who claim that JOYY's two top shareholders aim to lead a buyout of the company.

Those sources said the pair, chairman David Li and the founder of Chinese smartphone maker Xiaomi, Lei Jun, feel that the Nasdaq-traded tech company is undervalued.

Image source: Getty Images.

Their plan is to offer anywhere from $75 to $100 per share in a go-private transaction, the sources said. That's at least 33% higher than Wednesday's closing stock price. Apparently the pair is in talks with potential lenders to help them finance the transaction; it seems their goal is to use JOYY's current cash and equivalents position (totaling $4.9 billion) as collateral for a loan.

Together, according to JOYY figures cited by Reuters, Li and Lei own 31% of the company. Li alone holds 76% of its voting power.

Now what

While some investors are clearly getting excited about this potential deal, JOYY's post-pop stock price wasn't anywhere near that apparent $75 per share minimum. This indicates some skepticism that a deal can be agreed to at such a level. Even if it is, a buyout of this magnitude likely won't be effected quickly. Current JOYY shareholders, then, might be better off waiting to see how this story develops.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.


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