Unique: China set to clear Tencent’s $3.5 billion Sogou deal topic to knowledge safety situations: sources
(Reuters) – China’s antitrust agency stands ready to clarify tech giant Tencent Holdings Ltd’s plan to take the country’s No. 3 search engine, Sogou, private. Three people with knowledge of the matter told Reuters, a move that signals the watchdog is ready to wave some deals through, even if it tightens controls on the sector.
FILE PHOTO: A Tencent logo can be seen on its booth at China International Services Trade Fair (CIFTIS) 2020 in Beijing, China on Sept. 4, 2020. REUTERS / Tingshu Wang / File Photo
The regulator, the State Administration of Market Regulation (SAMR), has no objection to the $ 3.5 billion deal for 60% of the US-listed Sogou, which Tencent does not own while Tencent is ready to set it up A special mechanism to ensure data security – a first for the approval of SAMR deals.
Tencent also has to pay a comparatively small fine – 500,000 yuan ($ 76,000) – for failing to properly report deals for antitrust reviews, two respondents said, in line with previous cases for similar violations.
The move highlights that Chinese regulators are still trying to approve merger and acquisition deals in the tech sector, but now under tough conditions after years of laissez-faire approach. The green light to the closely watched deal will come a relief to the Chinese tech sector as Beijing’s antimonopoly crackdown on domestic internet giants peaked weeks after fintech firm Ant Group went public for $ 37 billion in November.
“What SAMR wants is enforcement … it is not in their interests to kill or actively block a deal,” said one of the people. “You agree with the actual market leadership status of the companies as long as this does not prevent a new market entry.”
Those with knowledge of the matter declined to be identified due to the sensitivity of the matter.
According to the analysis company SpeedTest, Sogou only tracks Baidu and Qihoo 360 in China’s huge internet search market and is the only search engine for Tencent’s all-in-one app WeChat, a must in everyday Chinese life. Tencent, China’s largest video game and social media company, first announced plans to take it privately last September.
Tencent and SAMR did not immediately respond to requests for comment when contacted by Reuters.
Sogou declined to comment.
One of the areas where more scrutiny has been made in the recent past has been mergers and acquisitions in this sector, with regulators poorly assessing the antitrust violations and, in some cases, data protection laws.
The linchpin of the contract approval terms is meeting the regulator’s requirements for data security – determining who can have what access to most of user data and personal information and how it should be used, the three people said.
A merger of China’s two leading video game streaming sites – Huya and Douyu, both backed by Tencent – is currently under review and will have to meet similar data security requirements, the sources said.
Reuters reported last month that Tencent had to offer concessions to get approval for its plan to merge the two sites, including giving up exclusivity on some of its content rights.
After the merger, Huya and Douyu will have to set up a firewall in between and will not be able to share user data and information, two respondents said.
SAMR would also clear the deal soon after finalizing the final concessions, they said.
($ 1 = 6.5468 Chinese yuan renminbi)
Reporting by Pei Li and Julie Zhu; Adaptation by Sumeet Chatterjee and Kenneth Maxwell