China's Baidu Follows Google Strategy By Entering Mobile App Business, Agrees To Buy App Store Operator 99 Wireless For $1.9B

   on July 16 2013 8:03 AM
Baidu
Pictured is the home page of the Chinese search engine Baidu.com. Reuters/Stringer

Baidu, China's largest internet search engine has agreed to buy Chinese app store operator, 91 Wireless Websoft Limited, from NetDragon Websoft (OTCMKTS: NDWTY), in a $1.9 billion deal, both companies said in separate statements, on Tuesday.

Baidu Holdings Limited, a subsidiary of Baidu Inc. (NASDAQ:BIDU) will purchase the entire issued share capital of 91 Wireless, and the deal would help Baidu get a foothold in the growing mobile and internet app store business in China.

Goldman Sachs, in an investment report released on Tuesday, said Baidu is attempting to emulate Google’s (NASDAQ:GOOG) success strategy with its search engine, YouTube, and its app store, Google Play, Chinese language website Sina reported.

The deal, which will give Baidu access to 91 Wireless' two mobile app stores in China, will also help the company to expand its interests beyond search engines, to compete with rivals such as Qihoo 360, which has a presence in both the search engine and app store markets.

"Baidu is pretty strong in the PC Internet space and 91 Wireless will serve as an important gateway into the mobile Internet sector, where it is still pretty weak right now," Xue Yongfeng, an analyst at research firm Analysys International told Reuters.

In May, Baidu agreed to pay $370 for the online video business of PPStream, marking its foray into internet video streaming business.

Hong Kong-based NetDragon, which owns a 57.4 percent stake in 91 Wireless will receive $1.09 billion and the remaining $800 million will be offered to other 91 Wireless shareholders, on terms and conditions similar to those offered to NetDragon, according to the official statements. The companies will further negotiate and agree on the relevant terms of the proposed acquisition by August 14.

Baidu faces stiff competition from Chinese rivals such as Tencent (HKG: 0700) and the Alibaba Group (HKG: 1688), which are pouring money into search engines, mobile games and other mobile internet-based businesses.

But, analysts believe that the acquisition of 91 Wireless will give Baidu an edge over its rivals.

NetDragon, in the official release, said that the company sees a huge potential for its cooperation with Baidu in the long term and that the acquisition will help both companies “achieve greater prominence in the mobile internet market.” 

The company also said if the proposed deal is completed, it would scrap the planned spin-off and proposed listing of 91 Wireless on the Growth Enterprise Market of The Hong Kong Stock Exchange Limited.

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