BEIJING (BLOOMBERG) - Tencent Holdings has offered to buy out and take private search engine Sogou Inc in a US$2.1 billion (S$2.9 billion) deal, adding to a slew of Chinese technology giants seeking to delist from US bourses.
Shares of the social media heavyweight climbed as much as 4.7 per cent Tuesday (July 28), buoyed by speculation it will more closely integrate Sogou's AI technology with its own services and devices to gain an edge on rivals like TikTok-owner ByteDance Ltd.
Tencent has in past years come under pressure from ByteDance and other up-and-coming rivals in the emergent short-video arena. Beijing-based Sogou - whose name translates as "search dog" - has long been the default in a slew of Tencent products including its marquee social app WeChat. It's also been making a push into artificial intelligence.
A takeover of Sogou also raises the prospect of a lucrative listing in Hong Kong or Shanghai in the future, on the heels of well-received debuts by Alibaba Group Holding and JD.com. It's become an increasingly attractive route for tech giants such as Jack Ma's Ant Group, which is speeding toward what could be the city's biggest float in years. Sogou chief executive officer Wang Xiaochuan in 2018 declared his ambition to list on mainland bourses when regulations permit.
Chinese internet companies are exploring listings closer to home after a proposed US bill threatened to force them to delist from New York by imposing stricter disclosure requirements - a prospect that looks increasingly plausible as the Trump administration amps up action against Beijing on multiple fronts. Online gaming company Changyou.com got taken private this year by Sohu.com., and 58.com is being bought out by a private equity consortium for US$8.7 billion.
The "market has been anticipating more companies to pursue secondary listing in Hong Kong," Jefferies analysts led by Thomas Chong wrote. "We consider there will be more synergies between Sogou and Tencent in search and smart devices in the future."
Tencent is offering US$9 in cash for each American depositary share it doesn't already hold in Sogou, backed by fellow internet giant Sohu. That's a 57 per cent premium to the target company's Friday close. Sogou said in a statement it was considering the takeover offer, though Tencent already owns about 39.2 per cent of Sogou but controls a majority of voting power.
Sogou, founded in 2005 and merged with Tencent's Soso search business in 2013, has counted on its partnership with the larger company to help it catch search leader Baidu Inc. Its 2017 IPO also helped bankroll a longer-term AI effort - about three quarters of its employees are now involved in research and development, according to its website.
Sohu's shares gained 40 per cent in New York, their most in a decade, while Sogou leapt a record 48 per cent to close the gap with the offer price.
