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Sohu Pops on Persuasive Qihoo Rumors

Stocks in this article: SOHU BIDU QIHU

NEW YORK ( TheStreet) -- ( SOHU) was popping more than 5.5% to $64.04 in afternoon trades Monday, with volumes nearly doubling on rising Chinese media speculation over the last few days that the company's Sogou search business has become the takeover target of Chinese internet companies Qihoo 360 Technology ( QIHU), ( BIDU) and Tencent.

The potential buyers were all down more than 2% Monday. Of the three, Qihoo is rumored to be the most serious bidder for Sogou, offering $1.4 billion in cash and stock, as this relatively new entrant to the Chinese search market seeks to build up its search volumes, search technologies and sales force through Sogou. The combined forces of Qihoo and Sogou could boost their search volume to nearly 20% of all search volume in China, according to Oppenheimer data, and increase their bidding power over advertisers.

"Qihoo can get the most synergies out of the combination," said Andy Yeung, an analyst at Oppenheimer & Co. in New York. "The combination would make Sohu's Sogou business and Qihu's search business a more credible competitor to Baidu."

Baidu, which is rumored to be willing to pay even more for Sogou, would likely not have too much to gain on the technology side and ad sales network side through the purchase, but would benefit from Sogou's popular pinyin Chinese input technology. "For Baidu, I think this would be a logically defensive move," Yeung commented.

Likewise, Tencent already has an ad sales network so there would be redundancy there in an acquisition. However, the purchase would bring Sogou's pinyin input technology to Tencent's mobile side and push it to the top two or three position in the Chinese internet search space. "Close to a double-digit market share," said Yeung.

Written by Andrea Tse in New York

>To contact the writer of this article, click here: Andrea Tse.

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