Baidu Inc., owner of China’s largest search engine, agreed to buy app store 91 Wireless for $1.9 billion in its biggest announced acquisition to gain a greater share of the mobile user market.
The company will acquire the majority stake owned by NetDragon Websoft Inc. (777) and all other shares, Baidu said in a statement today. Investors in 91 Wireless on March 27 included companies controlled by PCCW Ltd. Chairman Richard Li and Temasek Holdings Pte, a separate filing showed.
The deal gives Baidu control over China’s most popular third-party store for smartphone apps as it tries to navigate the shift from desktop computing, where it has 82 percent of the nation’s searches, to mobile devices. Baidu’s mobile app had 9 percent of China’s wireless customers as of April, according to data compiled by Bloomberg. U.S. leader Google Inc., facing a similar challenge, backed the Android operating system and started its own store to gain share against Apple Inc.
“Baidu is not as well established in the mobile Internet space as the desktop Internet space,” said Andy Yeung, an analyst at Oppenheimer & Co Inc in New York. “It’s a complementary strategy to enhance Baidu’s status in the mobile ecosystem.”
Baidu didn’t disclose earnings multiples of the business in its statement.
Billy Leung, an analyst at RHB Research Institute Sdn in Hong Kong, said the purchase price implies a multiple of 63 times earnings for 91 Wireless based on his estimate that the business would post net income of $30 million in 2013.
The app store was valued at $115 million in 2012, Joe Wu, chief financial officer for NetDragon said in August of last year during a conference call.
NetDragon shares slumped by a record on the agreement, which ends plans for the Hong Kong-based company to spin off 91 Wireless. The stock dropped 21 percent to HK$19.04 at the close in Hong Kong.
“People were originally expecting a spin off,” said RHB’s Leung. “After the sell off, NetDragon won’t be holding the business any more, so technically NetDragon won’t be profiting from any growth from the company.”
Shares (BIDU:US) of Baidu rose 4.9 percent to $101.59 in U.S. trading yesterday, before the announcement was made.
Baidu is led by billionaire Robin Li who has a net worth of $7.5 billion, according to the Bloomberg Billionaires Index.
Competition is intensifying in China for mobile users, with Alibaba Group Holding Ltd., the nation’s largest e-commerce company, buying a stake in Sina Corp.’s Twitter-like Weibo service in April. Sohu.com Inc. (SOHU:US), owner of China’s third-biggest Web portal, and software company Qihoo 360 Technology (QIHU:US) Co. also have apps for mobile searches.
Beijing-based Baidu will pay $1.09 billion for NetDragon’s 57.41 percent stake in 91 Wireless and acquire the remaining stock on the same terms, according to a filing with the Hong Kong stock exchange today.
It’s the biggest acquisition announced by Baidu, according to data compiled by Bloomberg.
The 91 Wireless business is the largest third-party distributor in China by active users, according to NetDragon, which cited iResearch data. It distributes apps for Apple iPhones and iPads as well as devices using Google’s Android system.
Lenovo Group Ltd. (992), the world’s biggest personal computer maker, has logged more than 1 billion downloads through its app store since it opened in 2010.
“Mobile app stores are an important entry point to the mobile Internet, and are therefore of great strategic interest to Baidu,” Kaiser Kuo, a spokesman for Baidu in Beijing, said in an e-mail.
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