Qihoo 360 today announced that it has issued a notice to smartphone maker Coolpad to exercise its put option, requiring the latter to purchase Qihoo’s entire 49.5% stake in Coolpad E-Commerce, a joint venture between the two which is also the parent company of Coolpad’s sub-brand Dashen and Qihoo-backed smartphone brand Qiku.

[Update] Qihoo 360 and Coolpad has just reached an agreement on Sept. 18 that the former will raise its stake in the joint venture to 75%, while the rest is hold by Coolpad.

According to an official statement from Qihoo, the company has a put option to sell its entire stake in the joint venture to Coolpad at a total price equal to twice its fair market value, exercisable if Coolpad breaches its non-compete obligations under the shareholders agreement.

The company also proposed a fair market value of $742.5 million USD for the 49.5% stake, based on a US$1.5 billion valuation of the entire share capital of the joint venture. Accordingly, the purchase price payable by Coolpad would be $1.485 billion USD.

The start of this messy breakup can be traced back to Dec. 2014, when the two firms set up a joint venture to focus on mobile terminal products distributed through Internet channels. Qihoo has invested $409.05 million USD for a 45% stake in joint venture and then increased its stake to 49.5% gradually.

Six months later, however, Qihoo has seen its partner turning favor toward a direct competitor LeTV, which became the second largest shareholder of Coolpad by purchasing an 18 percent stake in the company.

Qihoo claimed the agreement with Coolpad specified that Qiku will oversee smartphone production and Coolpad will be responsible for sharing resources in retailing channels and cooperation with telecom carriers. Yet, Coolpad circumvented the agreement through partnership with LeTV and give its competitor access to Qiku’s IP and research capabilities.

Coolpad’s partnership with LeTV have enraged Zhou who responded the news with a resentful WeChat status “Whoever stabbed me in the back to screw me up, my principle is that I will definitely fuck back.”

Several elements have soured the once sweet cooperation between Qihoo and Coolpad. The joint venture started with a dual-brand strategy to focus on different user groups—Dashen on 1,000 RMB budget smartphone market and Qiku on mid-and high-tier markets.

But the two partners are going separate ways as Zhou Hongyi, the CEO of Qihoo, gives more priority to businesses related to Qiku smartphone and Coolpad’s team for Dashen. Although Coolpad is still the controlling shareholder of the joint venture, Qihoo is seeking ways to become the largest shareholding through various means, according to a people close to the matter.

Qihoo responded that they did not excise the option immediately after Coolpad-LeTV tie-up in hopes that further negotiation may settle the matter. But months of talk wasn’t quite productive.

If Coolpad refuses to purchase 49.5% stake, it is highly possible that Qihoo may offer to acquire the remaining stakes in the joint venture. The issuance of this notice might help Qihoo to extract better bargains.

Related Articles:

Qihoo 360 Forms JV with Chinese Smartphone Maker Coolpad

LeTV Becomes Second Largest Shareholder of Coolpad With $350M USD Investment

Qihoo-Backed Qiku Elbows Into The China Smartphone Race

image credit: Sohu

Avatar photo

Emma Lee

Emma Lee (Li Xin) was TechNode's e-commerce and new retail reporter until June 2022, when she moved to Sixth Tone to cover technology and consumption. Get in touch with her via lixin@sixthtone.com or Twitter.

Leave a comment

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.