Tencent Offers to Take Sogou Private, Sogou Shares Rise 43.5%

From left to right: Sogou CEO Wang Xiaochuan and Tencent CEO Pony Ma. (Source: Lu Zhao/Pandaily)

Shares of China’s second biggest search giant Sogou Inc. have jumped 43.5% after the company announced it has received a preliminary non-binding proposal from shareholder Tencent Holdings Limited.

Sogou said on Monday Tencent offered to acquire the rest of Sogou’s outstanding ordinary shares at $9 a piece in cash. Sogou’s shares climbed to $8.39 in early morning trade, Reuters reported.

“We thank Tencent for its recognition of Sogou’s value, technical capabilities and product innovation potential,” Sogou CEO Wang Xiaochuan posted on WeChat. “Next, we’ll carefully discuss relevant issues so that Sogou can create greater value for users.”

The company said a special committee of the board consisting of independent directors will consider the proposal. Sohu CEO Charles Zhang has approved the proposal in a letter to the board.

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Founded in 2005 by Sohu Inc., Sogou debuted on the New York Stock Exchange (NYSE) in November 2017 and raised $585 million at $13 per share.

The proposed transaction, if completed, would make Sogou a private, indirect, wholly-owned subsidiary of Tencent. Sogou would also delist from NYSE after the deal. Sogou’s parent company Sohu would no longer have a stake in Sogou.

Chinese tech giant Tencent has been Sogou’s single largest shareholder in the past decade, holding 38.71% of the company’s total shares, surpassing Sohu’s 33.44%.

Tencent first invested $448 million in Sogou in 2013 and merged its search business and other related assets with Sogou. Sogou has continued to independently operate as a subsidiary of Sohu while Tencent president Liu Zhiping and COO Ren Yuxin joined Sogou’s board as directors. Chairman Charles Zhang and CEO Wang Xiaochuan remain on the board.

In June 2014, Sogou announced that it had obtained formal access to data about WeChat official accounts, and users could find relevant WeChat official accounts and articles in Sogou search results. This is one of the important sources of Sogou search traffic.

Sogou’s revenue in the first quarter of 2020 reached 1.79 billion yuan ($255.84 million), up 5% year-on-year, higher than Bloomberg’s estimate of $251 million. Its search and search-related revenue was 1.66 billion yuan where generalized second-price auction services accounted for 91%. Additionally, Sogou’s input method had 482 million daily active users in the first quarter.