Tencent Takes Sogou Private amid Tightening Regulation in Home Market

BEIJING, September 23 (TMTPOST)— China’s leading online media Sohu.com announced it completed share sales of Sogou Inc. and no longer has any ownership interest in the subsidiary when it received $1.18 billion in cash from the deal with another domestic tech giant Tencent.

The deal, valuing Sogou at about $3.5 billion, made the country’s major search engine a privately–held company indirect wholly-owned by Tencent and its American depository shares (ADSs) are no longer be listed on the New York Stock Exchange upon the transaction’s completion.

This is one of Tencent’s most oberserved M&A deals these years when China’s authorities are tightening up regulations on tech industry and enhancing antitrust scrutiny.

Two months ago, the State Administration for Market Regulation of China (SAMR), unconditionally approved Tencent’s plan to acquire equity of Sogou, days after the top market regulator’s blocking another Tencent-involved deal.

On July 12, SAMR announced to halt merger of Douyu and another Tencent-backed domestic streaming firm Huya, citing violation of the Anti-Monopoly Law. The watchdog expected the merger would strengthen Tencent’s dominance in China’s game live streaming market, so it has or may have monopolistic competitive impact or restrict competition in the market, thus could harm consumers’ interest as well as healthy development of the industry. Earlier that month, SAMR imposed penalties on several companies for RMB500,000 each due to antitrust violation found in twenty two mergers or acquisitions, including takeover of Sogou and other four involved with Tencent. Tencent was punished for failing to seek acquisitions and investments' regulatory approval prior to seal the deal.

Li Hailong, a lawyer in Shanghai told Chinese digital media Jiemian that SAMR’s approval didn’t conflict with the previous penalties and the move can be interpreted as the regulator’s finding that the deal won’t lead to the market monopoly. Legally speaking, the regulator concluded that the concentration of business operators that the deal is set to bring in doesn’t result in restrictive or exclusive competition, the lawyer explained.

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