Qihoo 360 Confirms Talks with Sogou on Acquisition

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Alex Xu, Co-CFO of Qihoo 360 (NYSE:QIHU) told Reuters today that the company was in talks to acquire Sogou Inc., an Internet service provider under Sohu (NASDAQ:SOHU). No agreement is reached.

Wang Xiaochuan, CEO of Sogou, said two months ago that they’d introduce strategic investment from Qihoo. More rumors later came saying Qihoo would acquire Sogou for $14 billion.

As the two companies have a similar business model, it is believed there are synergies between the two. If the acquisition is completed, the two will be dominant in markets of browser, Chinese Input method, Internet security, among others. The combined market share in search will also be the second in China.

Qihoo 360 and Sogou now are the second and third largest search engines in China, with 16 percent and 9 percent in market share, respectively, according to CNZZ, a third-party data service. The tie-up between the two will mount a more competitive challenge to Baidu, the search juggernaut whose market share in search has declined to 65%.

Qihoo 360 generated $110 million of revenue in Q1 2013, up 59 percent year-on-year and up 7 percent from the prior quarter. The revenue of Sogou amounted to $39 million in Q1 2013, up 73 percent year-on-year and down 4 percent quarter-on-quarter.