Changyou.com's Shares Surged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: American depositary shares of Chinese online gaming specialist Changyou.com (NAS: CYOU) scored on Wednesday, jumping as much as 14.8% on above-average trading volume.

So what: The company just agreed to buy gaming news portal 17173.com from Sohu.com (NAS: SOHU) for $163 million. This deal is the start of a brand-new platform strategy that should accelerate Changyou's growth tremendously within the vibrant Chinese gaming industry.

Now what: Sohu is the majority shareholder of both Changyou and 17173, so this might look a lot like a parent company rearranging the living room furniture just to stay busy. However, these subsidiaries are managed at arm's length, independent enough that Changyou had to sign a noncompete agreement with Sohu to get this deal done. The relationship reminds me of how storage giant EMC (NYS: EMC) lets majority-owned virtual computing specialist VMware (NYS: VMW) run free without much interference. It's a smart strategy, and the kissing-cousins deal actually makes a ton of sense.

Interested in more info about Changyou.com? Click here to add it to My Watchlist.

At the time thisarticle was published Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of EMC. Motley Fool newsletter services have recommended buying shares of Sohu.com and VMware. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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