The official website of China’s top antitrust regulator on Tuesday showed that Tencent’s planned acquisition of shares in Sogou, the country’s number three search engine, has gained unconditional approval.
According to public documents, on September 16, 2013, Tencent signed an agreement with Sohu to acquire a 36.5% equity stake in Sogou, later completing the transaction on the same day. After the deal is finalized, Tencent and Sogou’s surviving shareholder, Sohu, stand to hold 36.5% and 38.1% of shares, respectively, along with joint control of Sogou.
In September of last year, Tencent and Sogou signed a privatization agreement to take the company private for $3.5 billion. After this transaction is completed, Sogou will become a wholly-owned subsidiary of Tencent. This reshuffling was originally scheduled to wrap up in the fourth quarter of 2020 but was delayed due to its lack of regulatory approval.
As recently as July 6, Tencent faced a fine of half a million yuan in relation to this equity acquisition case.
According to China’s anti-monopoly law, if the acquisition of operators meets the reporting requirement stipulated by the State Council, the operators shall report to regulators in advance, while proposals that fail to be reported shall not be implemented. Unfortunately for Tencent, it did not report this case, so it was punished by the government with a 500,000 yuan fine.
Jiemian News consulted a lawyer to learn more, finding that it was a procedural requirement for operators to report a case, while “not having the influence of excluding or restricting competition” was a further substantive requirement. According to the official procedures, enforcement and punishment were carried out separately.
Tuesday’s unconditional approval does not conflict with previous penalties. The lawyer expressed that regulator believes the merger case will not result in the formation of a market monopoly.
Sogou originally belonged to Sohu before becoming an independent company. In September 2013, Tencent invested $448 million in Sogou, also merging its Soso search business and other related assets with Sogou.
After the transaction was completed, Tencent acquired 36.5% of diluted shares in Sogou. Over the past two years, Sogou has fallen into a bottleneck period. In the previous four consecutive quarters, the firm’s revenue has declined in comparison to the year before. In the first quarter of 2021, Sogou’s revenue was $137.2 million, down 47% year-on-year.
At of the close of US stocks on July 12, Sogou’s share price was $8.7 per share, amounting to an overall market value of $3.35 billion.