* To buy 57 pct of 91 Wireless from NetDragon, rest from
* NetDragon shares tumble as much as 23 pct after
* Baidu seeks to broaden business into mobile Internet
By Lee Chyen Yee and Paul Carsten
SINGAPORE/BEIJING, July 16 Baidu Inc,
China's top Internet search engine, said on Tuesday that it
would buy app store 91 Wireless for $1.9 billion, as it looks to
diversify beyond its mainstay search business and beef up its
presence in the mobile sector.
The planned acquisition follows Baidu's announcement in May
that it would buy the online video business of PPS Net TV for
$370 million. Chinese rivals Tencent and Alibaba Group
are also investing to stimulate revenue growth, with Alibaba
this year buying stakes in Sina Corp's
social-networking website Weibo and in navigation and maps firm
Baidu is also looking to fend off Qihoo 360, which
has been eating away at its search market share since breaking
onto the scene last year and which also has a competitive app
"Baidu is pretty strong in the PC Internet space and 91
Wireless will serve as an important gateway into the mobile
Internet sector, where it is still pretty weak right now," said
Xue Yongfeng, an analyst at research firm Analysys International
Baidu said it has agreed to buy a 57.4 percent stake in 91
Wireless, one of China's earliest app stores, from NetDragon
Websoft Inc for $1.09 billion, and the remainder from
"Mobile app stores are an increasingly important entry point
to the mobile Internet and are therefore of great strategic
interest to Baidu," Baidu spokesman Kaiser Kuo told Reuters.
China's mobile Internet market is expected to double to
about 300 billion yuan ($48 billion) in 2014 from 150 billion
yuan in 2012, with the number of active mobile Internet users
rising to 749 million from 521 million during the same period,
according to Analysys International.
Shares of NetDragon fell as much as 23 percent after the
announcement as the online gaming company was giving up one of
its key assets, analysts said.
NetDragon also said that it would scrap the planned spinoff
and listing of 91 Wireless on Hong Kong's secondary Growth
Enterprise Market if the acquisition is finalised.
NetDragon said it would continue to focus on the development
and operation of online and mobile games. In 2012 it had a
profit of 39 million yuan ($6.3 million), one quarter of which
came from its mobile Internet business, according to Thomson
Reuters Eikon data.
An analyst at Societe Generale estimated that Baidu could
draw $1.1 billion of internal cash, requiring it to raise $800
million via debt or equity foe the deal.
"We view the acquisition as credit positive as the
acquisition of the mobile app developer will diversify Baidu's
revenue stream and increase market share in the mobile Internet
business. That offsets the acquisition pace we view as
aggressive," the analyst said.
The analyst did not expect the acquisition to impact Baidu's
A3/A rating but did express concern that the "acquisition pace
should alarm investors on the company's aggressive growth
strategy, which comes with execution risk and rising leverage,
which could threaten the ratings in a longer term."
Baidu's bonds due 2022 were trading at 192/185
basis points over U.S. Treasuries after widening out to as much
as 200 bps over following the announcement.