QIHU Qihoo 360 Technology Co. Ltd. American Depositary Shares, Every 2 of Which Representing Three Class A Ordinary Shares

The investor group offering to buy out Qihoo 360 Technology Co. is considering cutting its $9 billion bid after China's stock-market rout lowered valuations, a person with knowledge of the matter said.

The proposed buyout would be the largest take-private deal for a U.S.-listed Chinese company.

The Internet-services provider's shares closed at $51.29 Thursday in New York trading, one-third below the nonbinding $77-a-share offer made in June by its chairman, Zhou Hongyi, and a clutch of investors including venture-capital firm Sequoia Capital China and Chinese securities firm Citic Securities Co. The person said discussions among the investor group members on revising the offer have taken place in recent days, but cautioned that no firm decision has been made on lowering the bid.

Because the Qihoo 360 offer, like the more than dozen made for U.S.-listed Chinese companies earlier this year, was nonbinding, Mr. Zhou's buyout group can alter the terms of the offer, or withdraw it. Other investors in the consortium include boutique investment bank China Renaissance Holdings Ltd. and Golden Brick Capital Private Equity.

Qihoo 360 declined to comment.

The original $9 billion offer was made in June at the height of China's stock market boom, when frothy valuations in China's domestic stock market lured the managers of U.S.-listed Chinese companies to embark on such proposed take-private deals with the aim of listing back home.

Those valuations in China have since come down to earth and few of the take-private offers have been completed this year, leaving investors skeptical about the remaining nonbinding bids. Many of those deals, as in the case of Qihoo 360, involve shares trading at a steep discount.

Some of the deals, however, have been making progress toward completion. WuXi PharmaTech (Cayman) Inc. entered into a definitive agreement with investors Aug. 14 to go private, moving the $3.3 billion buyout deal one step closer to completion.

The government's decision to halt Chinese domestic initial public offerings has cut off a key avenue for investors' eventual exit, and clouds the outlook for future deals to be able to arbitrage difference in valuations. Shares of many U.S.-listed take-private targets are now down significantly from their offer prices.

There is precedent for a Chinese buyout group lowering its bid in such a transaction. Among 38 completed take-private deals involving Chinese companies that had been listed on New York exchanges, one of them had a final takeover price lower than the initial offer, according to Dealogic. In 2012, Chinese metal-and-steel company Fushi Copperweld Inc. was taken private by an investor group including its co-chief executive, Li Fu, and private-equity firm Abax Global Capital Ltd. for $9.50 a share after the consortium lowered its offer by 17% from an initial $11.50.

The buyout group pursuing Qihoo 360 will need to win over the company's independent special committee, advised by J.P. Morgan Chase & Co., to have its bid accepted. A lower offer could open up the negotiations between the buyout group and the special committee to greater scrutiny from outside investors and regulators.

Rick Carew contributed to this article.

Write to Wei Gu at wei.gu@wsj.com

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(END) Dow Jones Newswires

August 28, 2015 08:05 ET (12:05 GMT)

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