Sep 17, 2013 05:55 PM

Tencent's Deal for Sogou Stake Seen as Bid to Head Off Rival

(Beijing) – A deal between Internet companies Tencent Holdings Ltd. and Inc. regarding the latter's search engine branch had as much to do with business as forestalling a rival, one expert says.

Tencent said on September 16 that it is investing US$ 448 million for a 36.5 percent stake in Sogou. It also said it would integrate its struggling search business and development team into Sogou. The deal ends months of speculation that Sohu was seeking investors for Sogou.

Tencent chairman Ma Huateng said the partnership with Sogou would benefit both his company and Sohu as they shared resources and technology. Tencent's search arm,, launched in 2006, but has stumbled along with slow growth and weak profitability, Ma said.

He indicated that Qihoo360 Technology Co.'s success in the search business was a factor in the latest deal, saying: "We have to quicken our step."

Industry commentator Xie Wen said the transaction is indeed an effort to counter Qihoo360, a provider of anti-virus software. The deal, Xie said, had the double benefit of enabling Tencent to integrate its search business into Sogou while at the same time battling Qihoo360.

There has been speculation that Qihoo360 was a potential buyer for Sogou. Qihoo360 launched a search site called in September 2012 and it is already No. 2 in the market.

Internet industry data provider said that at the end of August Baidu led online search providers with market share of 63.1 percent and Qihoo360 was second (18.3 percent). Sogou was third with 10.4 percent of the market, and Tencent brought up the rear with 3.6 percent.

Yu Chuyuan, the chief financial officer of Sohu, said Sogou will issue new shares for the transaction and existing shareholders will get a certain placement. Tencent president Liu Chiping and chief executive Ren Yuxin will join Sogou's board.

Sohu remains Sogou's controlling shareholder following the deal, and Sogou will remain an independent subsidiary. Charles Zhang, Sohu's chairman, said the companies started negotiating in secret at the beginning of the year, and Tencent's agreement that Sogou stay independent was crucial to getting the deal done.

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