M&A

UCWeb: China's Last Great Tech Takeover Target


Pedestrians use their mobile phones outside the Sogo department store in the Causeway Bay district of Hong Kong

Photograph by Lam Yik Fei/Bloomberg

Pedestrians use their mobile phones outside the Sogo department store in the Causeway Bay district of Hong Kong

It’s dealmaking time in Chinese cyberspace. As more mainlanders go online via smartphones and tablets, the country’s biggest Web players are gearing up for the era of mobile e-commerce. That’s one reason e-commerce giant Alibaba Group paid $586 million for 18 percent of Twitter-like service Weibo in April and $294 million in May for a 28 percent stake in mapping company AutoNavi (AMAP). Around that time, search engine Baidu (BIDU) set aside $370 million to buy the streaming video service of PPS Net TV, aiming to become the leader in mobile video.

Another potential prize is UCWeb, maker of China’s most popular mobile browser. The company hit the 300 million-user mark in March 2012 and by yearend was at 400 million, says Yu Yongfu, UCWeb’s chief executive officer. More than 60 percent of China’s Android users rely on it, according to the company. Of all the acquisition targets in China, UCWeb is “probably the last one that’s worth anything,” says Michael Clendenin, managing director of RedTech Advisors in Shanghai. In theory, buying the browser operator could help Baidu as it tries to keep up with Alibaba and Tencent (700:HK), China’s biggest Web company by revenue. Baidu boss Robin Li and his team “need to make a big audacious, overpriced investment to get a stake in this guy,” Clendenin says.

Problem is, “this guy” says he’s not interested. UCWeb (derived from “You Can Web”) is “determined to grow independently,” says Yu, 37, a former dealmaker with venture capital firm Legend Capital. “All the big players” have tried to convince him to do a deal, he says. “We didn’t approach them. They came to us.”

While at Legend in 2006, Yu considered investing in UCWeb, which then had only about two dozen employees. Instead, he joined the company and developed a strategy to make the browser faster and easier to use than competitors’ and better suited to the needs of Chinese mobile users. With other browsers, “you would just open software and have to type in the domain names you wanted to visit,” says Richard Liu, managing director of Morningside Ventures, an investor in the company. That’s not so easy to do on a small phone screen while typing in Chinese. UCWeb got around that problem by embedding the most common domain names in the browser, Liu says, so users don’t have to peck out the whole thing.

Like other Chinese Net companies, UCWeb has benefited from a tilted playing field, as the country continues to be a difficult place for U.S. tech giants to gain a foothold. Google (GOOG), for example, introduced the Chrome mobile browser last year, but since the company shut down its China-based search engine in 2010, it’s in a weak position to promote the competing product to mainland phonemakers.

UCWeb has not had an initial public offering, though it’s attracted some big-name investors, such as Alibaba and Nokia (NOK). The company had aimed for an IPO this year, Chief Financial Officer Roy Rong told Bloomberg News in 2012. But investors have since soured on Chinese stocks following several high-profile cases of accounting fraud. Yu says UCWeb doesn’t need to go public for now. It raised nearly $100 million in venture capital in 2011, and Yu says UCWeb has more than 1 billion yuan ($163 million) in cash, generated by advertising and online games.

Yu plans to expand into new markets. He’s putting together an engineering team in Silicon Valley and intends to push into India, Russia, and Indonesia. He says UCWeb, whose online gaming service in China has more than 10,000 titles, is testing versions in India and Vietnam. “There is huge room for growth,” Yu says. “The mobile Internet has just taken off, and there are so many things to do.”

The bottom line: UCWeb, maker of China’s top mobile browser, says it’s not for sale and is planning an overseas expansion.

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Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.

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