Tencent-Sogou merger first after overhauls

Editorial | Karen Ng and Reuters 23 Sep 2021

Tencent (0700) may announce its merger with Sogou officially this week, and its news and content unit Tencent Kandian will absorb most of Sogou's business and employees, mainland media reported.

Most of the business and products of Sogou, the number three engine in China, will be shut down and no longer operate as an independent brand after the announcement, said middle management staff at Sogou.

Kandian has received orders in mid-September to stop recruiting new workers and to "optimize" the current employees' structure, said some officers in the news unit of Tencent. Adjustment of headcounts after the merger will be done no sooner than the Spring Festival next year.

After merging with Sogou, the search engine segment will be the core business of Tencent Kandian, an officer in Kandian told the mainland media. Tencent responded to the rumor that the merger with Sogou and recruitment for Kandian will continue.

The State Administration of Market Regulation, China's antitrust regulator, approved the US$3.5 billion (HK$27.3 billion) deal in July.

As long as Tencent is willing to set up a special mechanism to ensure data security, the tech giant can take up the 60 percent stake of the US-listed Sogou that Tencent doesn't already own, sources said.

It was the first deal approval of the regulator after a series of regulatory overhauls sweeping the technology sector in mainland China this year. The move highlights Chinese regulators are still looking to approve merger and acquisition deals in the tech sector, but now with strict conditions after years of a laissez-faire approach.

It is expected that the merger to be completed during the second half of 2021, said Sogou in the second quarter result announcement.

According to the merger deal agreement, a Tencent subsidiary named TitanSupernova will buy all Sogou's shares. The search engine company will become a wholly-owned subsidiary of Tencent and delist from the New York Stock Exchange after the merger.

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