Alibaba In US Buy, Qihoo Still Searching For Sogou
It seems the word “imminent” can have several different meanings when it comes to M&A among Chinese Internet firms. In most cases, it means “very soon”, which seems to be the case with reports that a deal is imminent for e-commerce giant Alibaba to purchase video sharing site PPTV, also known as PPLive. Meantime, the word can also sometimes mean “a long time” or perhaps even “never”, which is the case for a deal that has seen reports appear several time for an imminent sale of Sogou, the search engine owned by web portal Sohu (Nasdaq: SOHU), to several different buyers.
The latest headlines reinforce the view that Alibaba is becoming an adept and voracious acquirer of other Internet firms, following reports over the weekend that the company has purchased a minority stake in a US e-commerce firm called ShopRunner. (English article; Chinese article) Meantime, one month after a deal was reportedly imminent for security software specialist Qihoo 360 (NYSE: QIHU) to buy Sogou, we’re seeing some new reports that underscore why Qihoo would so desperately like to close this elusive deal that may never come.
Let’s start with Alibaba, whose purchase of the Shoprunner stake comes just days after media reported a larger deal was close for the company to buy a controlling stake or possibly all of PPTV. (previous post) The ShopRunner deal looks interesting because it involves a purchase outside Alibaba’s home China market, and also because it has ties to Yahoo (Nasdaq: YHOO), a major stakeholder in Alibaba. Alibaba will invest $75 million for an unspecified minority stake in the US-based company, according to the reports, citing unnamed sources.
ShopRunner operates an online shopping platform similar to Alibaba’s TMall, where third-party merchants can set up online stores. The US-based company is headed by Scott Thompson, who briefly served as Yahoo’s CEO 2 years ago before resigning over a scandal involving exaggerated claims on his resume. Apart from Alibaba, Shoprunner’s other investors include eBay (Nasdq: EBAY), another leading e-commerce company that was once a bitter rival with Alibaba.
Shoprunner looks like an interesting investment since its clients include a large number of big-name western brands and its business model looks similar to Alibaba’s. Alibaba probably knows Thomspon through his brief tenure as Yahoo chief executive, though I doubt this new tie-up has any implications for the broader Alibaba-Yahoo relationship.
If this new tie-up develops smoothly, I could easily see Alibaba try to take control of ShopRunner completely, though it could face resistance from eBay, which may have similar ambitions. This new tie-up also comes as Chinese media continue to report that a deal that would see Alibaba and Hunan Satellite Television purchase some or all of PPTV is imminent, and I do expect we’ll probably hear some news on that front later this week. (Chinese article)
From Alibaba let’s move quickly to Qihoo, whose talkative chief executive Zhou Hongyi is boasting that the query share for his company’s fast-rising So.com search engine is fast approaching 20 percent. (English article) He made his remarks as So.com celebrates its first anniversary, in a tribute to the site’s rapid rise as it challenges longtime search leader Baidu (Nasdaq: BIDU).
The rapid rise of So.com has helped to propel Qihoo’s stock, which has more than quadrupled over the last year. (Chinese article) In order to keep that rapid growth going, Zhou would desperately like to buy Sogou, which controls about 10 percent of the Chinese search market and which Sohu has been trying to sell for most of this year. The latest reports a month ago indicated a deal with Qihoo was imminent, but we haven’t heard anything since then. I personally have given up on seeing a deal for the sale of Sogou anytime soon, and doubt that anything will happen before the end of this year.
Bottom line: Alibaba is likely to announce a purchase of PPTV later this week, while Qihoo is unlikely to reach a deal to buy Sogou before the end of this year.
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