Sources told Reuters that the chairman of the Nasdaq-listed Weibo company and a Chinese state-owned investor planned to privatize China’s response to Twitter, which sent Weibo’s share price up 50% on Tuesday.

According to sources, the transaction may value Weibo at more than US$20 billion, facilitate the exit of shareholder Alibaba, and see Weibo finally relist in China to take advantage of the higher valuation.

Three sources said that New Wave, the holding company of chairman Zhao Xiaolan, is cooperating with a Shanghai-based state-owned enterprise to form a consortium for the transaction, but did not disclose the identity of the state-owned enterprise.

Two sources told Reuters that the consortium hopes to bid about US$90 to US$100 per share to privatize Weibo, an 80% to 100% premium to the stock’s average price of US$50 in the past month.

They said the group’s goal is to finalize the deal this year.

Weibo said in a statement that Zhao Xiaolan and a state investor are negotiating to privatize the company, which is not true. It quoted Zhao as saying that he had not discussed the delisting of the company with anyone.

Weibo and Alibaba did not respond to Reuters’ request for further comment. Chao did not respond to a request for comment through Weibo’s parent company Sina.

After the Reuters report was released, Weibo’s share price soared by more than 50% in pre-market trading, which operates a platform similar to Twitter. After the opening, these gains shrank to slightly more than 6%.

Beijing drive

Three sources familiar with the matter told Reuters that the plan originated from Beijing’s push for Alibaba Group Holding Co., Ltd. and Ant Financial to divest their media holdings in order to control their influence on Chinese public opinion.

Due to confidentiality restrictions, all Reuters news sources refused to give their names.

Reuters reported in February that Weibo had hired banks for a secondary listing in Hong Kong in the second half of 2021. According to sources, this is no longer a plan.

Weibo’s annual report shows that as of February, Alibaba held 30% of Weibo’s shares-worth US$3.7 billion as of Friday’s close.

Regulatory crackdown

Since last year, Beijing has been seeking to control the Alibaba business empire of Chinese billionaire Jack Ma through a series of investigations and new regulations.

In October last year, Jack Ma publicly criticized regulators in a speech and has swept China’s Internet industry in recent months.

Data from Refinitiv shows that e-commerce giant Alibaba has invested in nearly 30 media and entertainment companies, including Hong Kong’s flagship English-language newspaper, the South China Morning Post.

Two sources told Reuters that the transaction proposed by Zhao Xiaolan is likely to withdraw from Weibo.

A Reuters source added that the plan also reflects China’s efforts to strengthen its control over private media and Internet businesses.

In the political tensions between Beijing and Washington, Chinese companies listed in the United States are also facing stricter scrutiny and possibly stricter auditing requirements from US regulators.

Many Chinese companies have opted to withdraw from the U.S. stock exchange and return to the stock market closer to the home country through privatization or secondary listing.

According to Dealogic’s data, 16 Chinese companies listed in the United States announced their delisting last year, valued at 19 billion U.S. dollars, while there were only 5 such transactions worth 8 billion U.S. dollars in 2019.

The State Council of China said on Tuesday that it will strengthen the supervision of overseas listed companies, citing the need to strengthen the supervision of cross-border data flow and security.

Fierce competition

Since its launch in a market where Twitter was blocked by the government in 2009, Weibo has developed rapidly. More than 500 million Chinese use Weibo to comment on everything from South Korean soap operas to China’s latest political conspiracy.

Alibaba acquired an 18% stake in Weibo through a US$586 million investment in 2013, which was its first major move to sell advertisements on Chinese social networks. Since then, it has increased its shares.

Weibo was listed on the Nasdaq in 2014, and most of its revenue comes from online advertising.

This worries investors because the growth rate of online advertising in China has slowed, and Weibo is losing ground in competition with other technology giants such as Bytedance and Tencent.

The Beijing-based company’s advertising and marketing revenue fell 3% last year to US$1.5 billion.

After falling 12% in 2020, its share price has risen 33% this year.