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Rumor: Sogou May Announce M&A Details in July

Tencent Tech, 7/01/13

According to a report from Tencent Tech, Chinese internet firm Sohu's (Nasdaq: SOHU) online search subsidiary Sogou will soon hold a press conference that may shed some light on rumors of Sogou's acquisition by internet services and security software provider Qihoo 360 (NYSE: QIHU) that have been circulating online for the past two months. The conference was originally scheduled for June 18, but was suddenly canceled just prior to the event and postponed until July.

Many industry sources have verified that Qihoo 360 has offered to fully acquire Sogou through an asset swap valued at over USD 1 bln. According to the initial agreement, Zhou Hongyi, CEO and Chairman of Qihoo 360, would give up his position as Chairman of Qihoo 360, which would be taken over by Sohu CEO Charles Zhang. However, these sources say that there were some details on which the two companies have not yet reached a decision. While Qihoo 360 and internet company Baidu (Nasdaq: BIDU) continue to come up with new acquisition plans for Sogou, nothing permanent has been decided yet.

Those close to the transaction between Qihoo 360 and Sogou say that the main negotiator for Sohu's side in the transaction talks is Sohu co-president and CFO Carol Yu. Sogou CEO Wang Xiaochuan is not involved in the negotiations at all. Wang previously insinuated during an interview that he has no say in how Sogou chooses to remain viable. Recently, other rumors have floated that a large investor has offered Wang USD 100 mln in funding should he take his team with him and start a new company.

A source close to Wang said that, even if Qihoo 360 were to successfully acquire Sogou, Wang would not leave in the near-term. "Given his personality," the source said, "Wang wouldn't abandon his team after all those years."

Last month, Wang stated that Qihoo 360 expressed interest three years ago in purchasing a 30% share in Sogou and taking over comprehensive management of the company's browser. However, due to a disagreement over company strategy between Wang and Sohu management, Wang did not agree to the transaction. Later, Wang rejected Qihoo 360's offer and sought out a strategic investment from Chinese e-commerce conglomerate Alibaba without Zhang's permission. In July 2012, Sohu bought back Alibaba's share in the company.

Editor's Note: For more information on this topic, please see "Sohu Denies Rumors of Selling Sogou to Purchase PPTV," MD 5/15/13 and "Update: Search Rivals Compete to Acquire Sogou," MD 5/13/13 issues.

Keywords: Charles Zhang Wang Xiaochuan Carol Yu Internet online search Baidu Sogou M&A Sohu BIDU Qihoo 360 QIHU Alibaba Group Zhou Hongyi

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The information contained in this newsletter is based upon sources that Marbridge Consulting believes to be reliable, and we have made every effort to translate the original articles or article excerpts as faithfully as possible. However, Marbridge Consulting makes no warranty of and assumes no legal responsibility for the accuracy of either the original source material or the English language translations.

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