NEW YORK ( TheStreet) -- Qihoo 360 ( QIHU) has reportedly finalized a deal to buy China's third-place search company Sogou for $1.2 billion in cash and stock.

According to a source close to the situation, Brightwire learned that Sogou, a subsidiary of ( SOHU - Get Report) is going to become part of Qihoo 360, as the two companies have signed the paperwork. Wang Xiaochuan, CEO of Sogou, however, denied that the deal was finalized.

A deal between the two companies has been rumored for some time, but in recent weeks, speculation has picked up. Sogou has been linked to acquisition rumors in the past, with names such as Tencent, Qihoo and Baidu ( BIDU), China's leading search company, all having reported interest in the company.

The acquisition is expected to boost Qihoo's market share in the lucrative Chinese search market. Sogou currently has less than 10% of the market, but 360 Search, Qihoo's search engine, has 16.3%, according to an industry Web site.

Google ( GOOG - Get Report), which has had run-ins with the Chinese government in the past and no longer operates in mainland China, had approximately 3% of the market as of the end of June.

Qihoo has not yet responded to a request for comment on this story.

-- Written by Chris Ciaccia in New York

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