(Bloomberg) — Tencent Holdings Ltd. has offered to buy out and take private search engine Sogou Inc. in a $2.1 billion deal, adding to a slew of Chinese technology giants seeking to delist from U.S. bourses.
Shares of the social media heavyweight climbed as much as 4.7% Tuesday, 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 Ltd. and JD.com Inc. 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 U.S. 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 ramps up action against Beijing on multiple fronts. Online gaming company Changyou.com Ltd. got taken private this year by Sohu.com Ltd., and 58.com Inc. is being bought out by a private equity consortium for $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’s return to the search engine business may pose a challenge to China leader Baidu, and help fend off competition from potential market entrants ByteDance and Alibaba. Tencent sold search engine Soso to Sogou in 2013. Its bid to buy the 61% of Sogou it doesn’t yet own at $9 per ADS will cost more than $2 billion.