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Zhang Chaoyang Open Letter, SOHU intends to implement liquidation

via:博客园     time:2018/5/17 13:35:44     readed:757


Tencent "first line" author Zhang Fan

On May 17th, Beijing time, Sohu CEO Zhang Chaoyang issued an open letter saying that on the May 29 special general meeting of shareholders, it will discuss soliciting the shareholders of Sohu.com Inc. (Sohu Delaware) to liquidate Sohu Delaware. proposal. Sohu Delaware Corporation is the parent company of the Sohu Group's listed holding company, Zhang Chaoyang said that this move is mainly to establish a more efficient holding company structure.

It is reported that after the implementation of the liquidation plan, Sohu and its subsidiary Sogou will end the history of passive payment of U.S. corporate income tax and improve economic returns. After the liquidation proposal is implemented, the Sohu Group's business, operations and assets will be the same as now, and the original shares of the original Sohu Delaware Corporation held by the shareholders will be automatically changed to the same number of Sohu Cayman ADS. During this period, Sohu's stock trading on NASDAQ will not be interrupted.

Zhang Chaoyang stated in the letter that there may be a postponement of the shareholders meeting: If the shareholders do not vote on the liquidation proposal by then, the company will authorize the board of directors and management to postpone the general meeting of shareholders in order to obtain more affirmative votes for the liquidation proposal.

The following is the full text of the open letter:

Sohu Chairman and Chief Executive Officer Sends Letter to Shareholders on Extraordinary General Meeting

Beijing, May 17, 2018 – Sohu (NASDAQ: SOHU), China's leading Internet media, video, search and gaming services group, Dr. Zhang Chaoyang, founder, chairman and chief executive officer, today will be 2018 The special shareholder meeting of Sohu held on May 29, 2015 sent a letter to shareholders. The letter is as follows.

Dear Sohu shareholders,

As the founder, chairman and chief executive officer of Sohu.com Inc. (NASDAQ: SOHU) (hereinafter referred to as "Sohu Delaware"), I hereby sincerely offer this letter. Up to the present, you should have received notice from our special general meeting of shareholders and the joint general meeting of Sohu Delaware and its Cayman subsidiary Sohu.com Limited (hereinafter referred to as "Sohu Cayman"). Voting instructions and prospectus. Regarding the above documents, you can also visit the website of the Securities and Exchange Commission (hereinafter referred to as "SEC") for viewing. The web address is https://www.sec.gov/edgar/searchedgar/companysearch.html. Search for "SOHU COM INC" or "Sohu.com Ltd".

The “Meeting of Shareholders' Meeting Proxy Statement and Prospectus” is about the solicitation of the shareholders of Sohu Delaware Corporation to dissolve Sohu Delaware Corporation (hereinafter referred to as “liquidation”) and to “clear and dissolve Sohu’s Delaware plan”. According to the proposal of the book, according to the proposal, Sohu Delaware will be dissolved; all common shares issued by Sohu Delaware will be cancelled, representing the American depositary shares of Sohu Cayman common stock ("ADS") ) It will be prorated to Sohu Delaware shareholders (hereinafter referred to as "liquidation proposal").

As Sohu’s extraordinary general meeting of shareholders is about to be held on May 29, 2018, if you have not yet voted for “clearing” the liquidation proposal and related proposal, it is necessary to win more votes for the approval of the liquidation proposal. To authorize the board of directors and management to postpone the proposal for the special general meeting of shareholders, I hereby send a letter asking you to vote as soon as possible to support the proposal.

I believe that the implementation of the liquidation proposal will bring great benefits to Sohu Group and our shareholders. If the shareholder approves and implements the liquidation proposal, Sohu Group’s listed parent company will be changed from a Delaware company to a Cayman Islands company. After the liquidation proposal is implemented, the Sohu Group's business, operations and assets will be the same as now. The ordinary shares of the original Sohu Delaware Corporation you hold will automatically be changed to the same number of Sohu Cayman ADS. The ADS will continue to trade publicly on Nasdaq with the stock code of "SOHU" starting the next day after the liquidation becomes effective. Throughout the entire process, Sohu's stock trading will not be interrupted.

What I want to emphasize is that the establishment of a more efficient holding company structure is one of the core reasons for our current liquidation proposal. This structure will bring long-term huge economic benefits to Sohu Group and its shareholders, and it can also maintain a strong Corporate Governance. By having a U.S. company that does not have any operations, management or staff in the United States as the listed parent company, such a controlling structure is undoubtedly very inefficient.

After the liquidation is completed, Sohu Group will no longer pay US corporate income tax. From the perspective of long-term investment of Sohu Group, please pay attention to the following points:

· If we do not implement the liquidation proposal, even if it is not operating in the United States, Sohu Delaware will also pay taxes on the passive income of its subsidiaries outside the United States that are in accordance with the “US Internal Revenue Code” definition of “Subpart F” passive income. Passive income includes rent, royalties, interest, dividends, and income from disposal of investment assets.

· If we do not implement the liquidation proposal, due to the new tax reform bill passed in December 2017, the Sohu Delaware company should also pay for the low tax revenue of its intangible assets of foreign subsidiaries in the United States. The above excess profits tax.

· If our listed parent company is still a U.S. company, in the foreseeable future, we should all pay U.S. tax on its passive income and other specific income.

· For example, if we do not implement liquidation proposals, we will continue to pay U.S. tax on passive income, which will affect our interests in our subsidiary Sogou. Based on the Sogou Company's stock value of $9.5/ADS on May 15th, 2018, Sohu holds a 33% stake in Sogou.com worth about $1.25 billion. If the Sohu Group subsidiary, which we directly hold Sogou shares, disposes of the shares, even if the Sohu Group subsidiary is a non-US company, as long as the disposal price is higher than our input costs to these Sogou company shares, as an American company’s search company The Chinese company will still need to generate “Subpart F” passive income in accordance with the US corporate income tax rate of 21%. Although we do not currently intend to dispose of Sogou’s shares, this example shows that if the listed parent company continues to maintain the identity of a U.S. company, it will be subject to a variety of U.S. taxes such as passive income, excess profits tax, and this is actually a tradeoff proposal. Important issues that should be considered.

Considering Sohu’s current market value and other unknown events, delaying the implementation of a similar liquidation proposal at some time in the future and Sohu Group’s not carrying heavy tax costs may become difficult. If the liquidation proposal is not implemented now, we may also be trapped indefinitely in the mechanism of passive income and excess profits tax.

It also needs to be emphasized that Sohu will continue to maintain good corporate governance, and this will not change as a result of relocating to the Cayman Islands. If you only pay attention to the differences between Delaware law and Cayman Islands law, or the differences between US companies and non-US companies in the SEC disclosure, you may overlook the core reason for our relocation of the parent company is that it is for Sohu Group. And the economic interests of shareholders may also ignore the efforts we have made to shift Sohu’s existing mechanisms for protecting shareholders’ rights to Sohu Cayman. For example, if you carefully review our “Meeting of Representatives at the Shareholders' General Meeting and Prospectus,” you will find that if you relocate to the Cayman Islands, Sohu Cayman will continue to establish an independent audit committee, nomination committee, and compensation committee. Continuing to hold annual general meeting of shareholders will continue to provide important protection measures concerning shareholder rights and interests, such as giving shareholders the right to nominate directors and propose motions. In general, relevant laws do not impose such rigid requirements on non-US companies or Cayman companies.

Your vote is very important. Based on the recommendations of the Board of Directors, we urge you to consider the major economic benefits that may arise from the implementation of the liquidation proposal described in this letter. You are kindly requested to vote invaluable for both of our proposals.


Chairman and Chief Executive Officer

If you have any questions about how to vote, please contact:

United States:

Phone: +1 800-509-0984

China region:

Telephone: +86(10) 5660-3068 / +86(10) 6272-5694

E-mail: ir@contact.sohu.com

About Sohu

Sohu (NASDAQ: SOHU) is the leading Internet brand in China and the leading news provider in China. Sohu's online assets have provided SOHU users with a wide range of choices in information, entertainment, and communication. Sohu established one of China’s most comprehensive Internet asset portfolios and its own search engine, including the largest portal and China’s leading Internet media website www.sohu.com; interactive search engine www.sogou.com; online game development and operations Business www.changyou.com and leading video site Sohu video tv.sohu.com and so on.

Sohu’s corporate customer services include online advertising on its network matrix and auction search and search homepage advertising services on its own research and development search engine. Sohu also provides news and information services based on mobile phones and mobile platforms, such as news clients and mobile phones, sohu.com and m.sohu.com. Sohu’s online game subsidiary Changyou Co., Ltd. (NASDAQ:CYOU) operates a number of online games, such as “Tianlong Babu”, one of China’s most popular client games, and various mobile games. Changyou also operates the 17173.com website, a leading game information portal in China. Sohu's online search company, Sogou (NYSE: SOGO), is China's second largest mobile search engine. Sogou owns and operates Sogou input method. Sogou input method is the largest Chinese input software. Sohu was founded by Mr. Zhang Chaoyang, a pioneer in China's Internet, and has been successfully operating for 22 years.

For investor and media inquiries, please contact:

China region:

Yuan Yuan

Sohu Corporation

Phone: +86 (10) 6272-6593

E-mail: ir@contact.sohu.com

United States:

Linda Bergkamp

Huixin News

Phone: +1 (480) 614-3004

E-mail: lbergkamp@christensenir.com

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