Australia Markets closed

Why Changyou.com Stock Soared Monday

Daniel Sparks, The Motley Fool

What happened

American depositary shares of Changyou.com (NASDAQ: CYOU) skyrocketed on Monday. The video game development specialist saw its stock rise as much as 56%. As of 1:33 p.m. EDT, the stock was up 48.2%.

The stock's gain follows news that the tech company received a preliminary nonbinding proposal letter from Sohu.com to acquire all remaining outstanding shares of the company as part of a deal that would value each of Changyou.com's American depositary shares (ADSs) at $10.

A chart showing a stock price moving higher.

Image source: Getty Images.

So what

Sohu.com is already a controlling shareholder of Changyou.com. But this transaction would make Changyou.com a fully owned, privately held subsidiary of Sohu, and Changyou's ADSs would be delisted. Changyou.com shareholders, of course, would receive $10 per ADS.

Investors, however, should treat this potential transaction as what it is: a nonbinding proposal. In other words, nothing is certain yet.

Now what

Changyou.com said it expects a special committee of independent directors to consider Sohu's proposal letter and proposed transaction.

In the meantime, Changyou.com "cautions that the Changyou Board has just received the Proposal Letter and has not made any decisions with respect to the Proposal Letter and the Proposed Transaction," the company said in a press release on Monday morning.

More From The Motley Fool

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com