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Baidu, Inc. Message Board

  • geoffrey28 Oct 13, 2011 12:14 PM Flag

    Many stocks go up before earnings and

    then drop after earnings are released. BIDU is certainly going up but I can't believe it will drop on the 27th.

    Naturally it comes down to expectations. If they disappoint,, down it goes.

    I'm guessing but I think it's worth holding come hell or high water. What say some of you smart guys????

    Kids need not answer.

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    • that IS a surprisingly large drop for after hours trading. but since the other chinese stocks (sina, sohu, youku, ntes, etc) don't seem to be suffering the same fate as bidu, then it must be something company specific. maybe the technician's sell rating, mentioned by another poster?

    • So basically if it is good news. Then bidu will pop up.

    • Since I'm sensing some understandable VIE burnout in this thread, I'm going to let the issue rest. As an exercise to prove to myself that I understand the VIE stuff, I plan to put together a full Google document of the VIE facts and risks, as I see them, then invite the other smart people from this board (if you're reading this, that includes you!) to inspect that document, fix anything that's wrong, and comment on the risks.

      Until then, I'll leave just one final opinion -- think of it as explanation for why I keep wanting to beat this dead horse to death. Can anyone dispute that when we buy "shares" of Bidu, all we are actually buying are contract rights to a contract which is clearly illegal under Chinese law? (For non-attorneys, Illegality is a valid, fully effective defense in any contract dispute in the west).

      As an excellent example, let's assume that we "shareholders" get screwed out of 50% of our value (to see how, see bottom paragraph). Angry, we sue the Chinese based VIE "Beijing Baidu Netcom Science and Technology Co., Ltd." Since the company has no assets outside China, we're forced to file in China under Chinese law. As a defense, Baidu Netcom offers up contract illegality, the exact same defense Alibaba used against Yahoo this summer. Unless China views the contract defense of illegality differently than the west (unlikely, especially as it would favor foreign investors over Chinese companies in this context), we'd likely lose this case. That means that the only thing preventing us from getting screwed is Baidu's not deciding to screw us (hopefully braced by the Chinese govt's desire not to cut future expanding Chinese companies off from western capital via IPO's). That's the scenario that's been keeping me up nights.

      You might wonder why I chose a 50% loss in our value. Well, it's because that's the approx percentage loss that Yahoo appears to have taken for Alibaba's "sale" of Alipay. Quick facts: Alibaba stopped liking Yahoo, which "owned" 40% of Alibaba, so Alibaba decided to screw them. Using their VIE, they did. It turned out that the Illegality contract defense barred Yahoo from suing Alibaba, so it had to accept a settlement that paid it only a fraction -- some analysts say less than 50% -- of the total value of Alipay, the segment of Alibaba sold. Following that identical pattern, what if Baidu's founders and true owners decide to do the exact same thing, offering us 50% of the stock's value in "compensation" for losing our contract rights (the only thing we actually own)?

      Losing half our money is distressingly easy:

      (Fictional) Press Release: Today, Baidu Online Network Technology, a Beijing company, announces that it has sold all of its current and future contractual rights to Beijing Baidu Netcom Science and Technology Co., Ltd. for $22.8 billion, or $65 per contract right. This agreement was ratified today by 100% of the voting shareholders of both companies. When asked the purpose behind the sale, Robin Li, CEO of both companies, indicated that Chinese law -- which bans foreign ownership of internet search engines -- required the manuever. The now incomprehensibly rich Li said, smiling, "we always knew we were operating in a legal gray area, but the recent Alibaba transfer of Alipay indicated to us that our VIE arrangement was actually illegal under Chinese law." When asked if the foreign shareholders were being fairly compensated at $65 per "share," Li, after lighting a pile of hundred dollar bills on fire just for the fun of it, said "they're lucky to get anything, really; without the ownership change, the corporation would be illegal and therefore cease to exist. $65 is better than $0."

    • oh, and there's one more thing:

      3) China's GDP and other economic stats are due to be released overnight (US time).

    • 1) The Chinese Communist Party (CCP) concludes its 4-day meeting tomorrow (Tuesday - which is our Monday night); and

      2) Carter Worth, technical analyst at Oppenheimer effectively put a sell (based on technical analysis) on Bidu (as well as PCLN)

    • Excellent post; thanks for your views. Your confidence in investors' due diligence is touching, but, I fear, misplaced.

      But even if we accept your optimistic version of regular investors' due diligence habits, I still don't think that transfers into informed investors on the VIE thing, because the VIE thing is F**king Complicated and difficult to figure out.

      Even if our (now diligent) investors attempt to figure out what VIE's are and how they work, I doubt they would be able to. Not because people are lazy or stupid or anything like that, but rather because it took me 2 weeks of on and off researching and a number of email exchanges with former classmates to finally understand the VIE risks. Now, in this sentence I'm going to reveal more of myself than I normally do, but this confusion prevailed despite the fact that I'm an ivy league law school graduate who practiced corporate law for 5 yrs. Basically, this VIE stuff is hard as hell to understand, and I don't think many do. Still, I'm going to let the subject drop for a while (see my final, more general 'i'm leaving vie's for a while' post, below).

    • As a non institutional investor with no degree in finance, I assure you that when it comes to their hard earned money, 95% of people do their homework diligently, especially when their stock overly tanks for a reason they do not comprehend. They immediately find out exactly what happened and evaluate the risks. It's already happened and it's been clarified if not resolved, IMHO it won't be as dramatic for Baidu should the VIE issue come up again. Everyone is now aware of this issue and in my opinion unless something drastic happens, Baidu is just too attractive to pass up RIGHT NOW. I used to be strictly buy and hold for the long run but until Europe doesn't get it's act together, we truly are in no man's land. I will sell into earnings and buy back after the G20 meeting at the start of Novembre if they finally get their act together. If Greece by any chance defaults, I don't want to be anywhere near the market unless it's short and only after the fact. Better safe than greedy or sorry. There are bigger issues at hand at the moment. gl

    • I think there is more to Baidu than just their earnings going on. They HAVE to be involved with some corporate action because they are known to be moving into other countries (Egypt and Thailand). I think that maybe on the day earnings are announced we will get a little more than expected

    • thanks for your comments; i agree with everything you've said, except i think i'm viewing the VIE problem as more of a price hit risk if, say, there's a new wave of articles about them, or (yipes) there's another 'incident' involving VIE's, like the yahoo/alibaba thing. so, even though i completely agree with you that any changes in listing requirements made by the Chinese would likely only target NEW ipo's and wouldn't seek to unwind existing VIE'S, i fear the market won't be sophisticated enough to make that distinction. since a person nearly needs a law degree to understand the differences and risks of vie's vs, say, regular adr's, i'm thinking the market may just go with the equation vie = confusing & scary = risk = bad = sell.

      you mention possible contingency plans to vie change. have you heard anything specific to bidu on that? i was hoping it'd be included in the 10-q on the 27th, but having specific public knowledge that bidu's "on top of the situation you didn't know existed and has been preparing for this for some time" might have a calming effect on the mkt, in case the next round of VIE probs are foisted on the chinese companies before they're ready for them. do you happen to know, does bidu use ropes & gray as their corporate counsel? ropes is the only firm i've heard mention contingency plans vs. vie changes for new (and even worst case scenarios for existing) vie's.

      still, i view it as a bad sign that neither you nor i even knew that vie's weren't identical to adr's before a month or two ago. i suspect that means that 95% of non institutional investors are completely clueless about them. those 95% are the ones likely to panic at the mere public mention of vie's. and since i'm shocked at just how big the vie risk really is, i'm not even positive the institutional investors won't overreact to, say, a new yahoo/alibaba sized blowup. hmm, is it possible to conduct a poll using this board's technology? if y, can you give me dummy directions for the mechanics and etiquette (if any) of doing a poll?

    • I usually buy leap options on bidu most of the time and it has served me well so i will have time to wait if bidu doesnt go to $156 on earnings but i hope that is not the case.
      To answer your question, at first when i heard about it i had no knowledge of what it was. Upon further research i learned bidu is a major participant. Since the VIE structure has been allowed since bidu went public along with sina i dont believe it will affect them. In numerous articles i have read they have said the tentative new rules wouldnt apply to " existing" companies such as sina and bidu. Bidu has worked and complied with chinese govt officials to cooperate with the govt on corrupt and fraudulent practices, so i dont think they would throw thebaby outwiththe bath water and implicate bidu with this VIE situation. I believe they will crack down on this structure with the newer ipo's. Also bidu's lawyers have come out and stated theyhave prepared just in case a business restructuring program for bidu in case they decide to proceed further which they have said would take years to rectify. Hence i dont see this as an immediAte or even viable threat to bidu now orever but a way for hedge funds to buy in cheaper on the dips when this is constantly repeated

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