(Bloomberg) – Tencent Holdings Ltd. has offered to buy and take private search engine Sogou Inc. in a $ 2.1 billion deal, adding to a slew of Chinese tech giants seeking to pull out of resources. Americans.
Social media heavyweight shares rose as much as 4.7% on Tuesday, fueled by speculation that it will more closely integrate Sogou’s AI technology with its own services and devices to gain an advantage over rivals like the owner. from TikTok ByteDance Ltd.
In recent years, Tencent has come under pressure from ByteDance and other promising rivals in the emerging field of short video. Beijing-based Sogou, whose name translates to “search dog,” has long been the default on a host of Tencent products, including its social app WeChat. It has also been pushing artificial intelligence.
The Sogou acquisition also raises the prospect of a lucrative listing in Hong Kong or Shanghai in the future, following well-received debuts by Alibaba Group Holding Ltd. and JD.com Inc. It has become an increasingly attractive route for tech giants. like the Jack Ma Group of Ants, which is accelerating towards what could be the largest float in the city in years. Sogou CEO Wang Xiaochuan declared in 2018 his ambition to list on the continental fields when regulations allow.
Chinese internet companies are exploring listings closer to home after a US bill threatened to force them to withdraw from New York by imposing stricter disclosure requirements, a prospect that seems increasingly plausible as the Trump administration expands action against Beijing on multiple fronts. Online gaming company Changyou.com Ltd. was made private this year by Sohu.com Ltd., and 58.com Inc. is being purchased by a private equity consortium for $ 8.7 billion.
The “market has been waiting for more companies to search for secondary quotes in Hong Kong,” wrote analysts at Jefferies led by Thomas Chong. “We believe there will be more synergies between Sogou and Tencent in search and smart devices in the future.”
What Blomberg’s intelligence says
Tencent’s return to the search engine business can be challenging for Chinese leader Baidu, and help defend against competition from potential market participants ByteDance and Alibaba. Tencent sold the search engine Soso to Sogou in 2013. Its offer to buy 61% of Sogou that it does not already own at $ 9 per ADS will cost more than $ 2 billion.
– Vey-Sern Ling and Tiffany Tam, analysts
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Tencent is offering $ 9 cash for each US deposit share it does not yet own in Sogou, backed by internet giant Sohu. That’s a 57% premium for the target company’s Friday close. Sogou said in a statement that it was considering the takeover offer, although Tencent already owns around 39.2% of Sogou but controls the majority of the voting power.
Sogou, founded in 2005 and merged with Tencent’s Soso search business in 2013, has counted on its partnership with the largest company to help it catch search leader Baidu Inc. Its 2017 IPO also helped fund an intelligence effort. Longer-term artificial, about three-quarters of its employees are now involved in research and development, according to its website.
Sohu’s shares gained 40% in New York, its most in a decade, while Sogou jumped a record 48% to close the gap with the offer price.
(Updates with Tencent share the action in the second paragraph)
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