Opinion | Internet M&A heats up with Sohu, PPTV talk

I've written too much about neglected web portal Sohu (Nasdaq: SOHU) recently, but the latest rumours of a potential tie-up between the company and PPTV, operator of one of China's leading video websites, are just too irresistible for me to ignore. Those rumours say Sohu is in talks to combine its own online video business with PPTV to create one of the nation's top three players. News of such talks comes just a couple of weeks after leading search engine Baidu (Nasdaq: BIDU) purchased another top video site, PPS, for US$370 million, and indicates a new wave of consolidation in China's Internet space may be gaining momentum.

As I said at the outset, I've written quite a bit about Sohu in the last week, as this neglected company is suddenly appearing at the heart of several M&A rumours. That's because Sohu, despite its failure to break into the ranks of China top Internet firms, still owns a number of solid, second-tier assets that look like attractive M&A targets for bigger firms. Those assets include a major video sharing site, an online gaming unit, a search engine and one of China's oldest and best-known web portals.

My instincts tell me that some kind of talks are probably occurring between Sohu and PPTV, though it's obviously too early to say if we'll see a tie-up. I suspect a tie-up is indeed in the works and will probably be announced in the next month or two, with Sohu investing perhaps US$100-$300 million for a controlling stake of PPTV.

Sohu would then combine its own video business with PPTV into a single online video company, with an aim to making an IPO for the new company as a standalone business by the end of this year. Sohu has previously said it wants to spin off and separately list its online video business in the US, but hasn't been able to doing so due to a chilly investor climate towards China stocks. This new combination could create a solid new player in the market, and possibly even one that could be profitable this year.