Tencent Aims To Bolster Search Business With Proposed Sogou Buyout

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China (Shenzhen) IT Summit

Pony Ma Huateng, chairman and chief executive officer of Tencent Holdings Ltd. (Photo by Visual ... [+] China Group via Getty Images)

Visual China Group via Getty Images

China’s Tencent has made a preliminary and non-binding offer to buy out New York-listed search engine operator Sogou in a $2.1 billion deal, which analysts say could potentially help Tencent build up its online search business.

The Shenzhen-based gaming and social media giant is offering $9 in cash for each of Sogou’s American Depositary Share that it doesn’t already own, according to an online statement Sogou put out on Tuesday. The deal, if completed, would see the company go private and become a wholly owned subsidiary of Tencent. Sogou’s shares jumped 48% to $8.5 as of Tuesday market close, valuing the Beijing-based firm at $3.3 billion.

Shawn Yang, a Shenzhen-based managing director of research firm Blue Lotus Capital Advisors, says Tencent could be hoping to bolster the search function within its WeChat super app. The messaging platform with almost 1.2 billion users also allows people to search for a wide range of content such as news and music offered by other sites and apps. Its mini programs, or so-called lite apps that can be embedded and accessed within WeChat, come with product and content search functions as well.

“If the deal is completed, Tencent could then potentially integrate Sogou with WeChat search,” Yang says. “It is possible that Tencent has already evaluated Sogou, and is attracted by its talent and expertise in technologies such as artificial intelligence.”

A Tencent spokesperson says the company has no additional comment on the proposal, and Sogou didn’t respond to an e-mailed request for comment. In the aforementioned statement, the company says a special committee of the board is considering the proposal. Tencent is already the largest shareholder of Sogou. It owns about 39.2% of Sogou and controls more than 50% of its voting rights. Chinese media and entertainment firm Sohu owns a 33.8% stake and controls 44% of its voting right.

The proposed deal also comes at a time of escalating tensions between China and the U.S. Faced with an increasingly hostile environment and a potential auditing clampdown, a slew of U.S.-listed Chinese firms have opted for funding avenues closer to home. This year, companies including e-commerce site JD.com and gaming firm NetEase have opted for secondary listings in Hong Kong, while online gaming company Changyou was taken private in April.

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