NEW YORK ( TheStreet) - Thursday night on TheStreet.com, Chris Ciaccia reported that Qihoo 360 ( QIHU) has agreed to buy the Sogou search business from Sohu ( SOHU) for $1.2 billion.
If that's true, the Chinese Internet search sector just got a lot more competitive and Baidu's ( BIDU) dominance is now seriously threatened. According to Chris, who was reporting on what Brightwire said, Sohu and Qihoo have agreed to a deal that will be paid for with a combination of cash and Qihoo stock. Rumors involving Qihoo around the Sogou search engine first surfaced over a month ago. It seemed that those reports led to other potential bidders such as Baidu, Tencent ( TCEHY) and Alibaba ( ALBIY) getting involved. At one point last month, rumors suggested that the price for Sogou had been pushed up to $2.6 billion. Sohu's market cap is $2.5 billion, and it has over $1 billion in cash on its balance sheet. An influx of $1.2 billion in cash and Qihoo stock should be a boon to Sohu shares. It's remarkable how far Qihoo has come in a year. Last summer, the company was still trying to fight off criticisms that it was a fraudulent operation. Former Google ( GOOG) China head Kai-Fu Lee defended the company publicly against a series of attacks made against Qihoo by short sellers. Back then, Qihoo's stock was in the teens. Yesterday, it closed at an all-time high of over $53. The rise correlates with Quihoo's growth in Chinese search share from basically nothing last year to 16% today. And with Sogou, Qihoo would get another 10% in market share to reach about a quarter of the Chinese search market. That is bad news for Baidu, which had basked in the glow of Google's departure from mainland China a few years ago. It seemed as if Baidu would have a lock on the search market in China forever. But nothing is forever in China. Baidu has been slow to adapt to the rapid rise of mobile and has now given up its big lead in search. Baidu shares have been down for the year when the rest of the Nasdaq and many other Chinese Internet stocks have been doing well. Baidu has to prove that it has a story to tell Chinese users -- and investors -- in mobile. To date, it has been quiet. It's given the impression that it's too slow and bureaucratic to respond. And Qihoo won't be Baidu's only threat. The progress that Qihoo has made in a year against Baidu will inspire other potential competitors -- especially Alibaba -- to jump into the search pool as well. After all, search is profitable and nothing attracts scores of Chinese competitors like profits. At the time of publication, the author was long on Sohu and Qihoo, and short on Bidu. Follow @ericjacksonThis article was written by an independent contributor, separate from TheStreet's regular news coverage.