‘Consolidation favours the strong’: Chinese group including Qihoo 360 subsidiary spending US$1.2bln on Norwegian browser company Opera Software

PUBLISHED : Wednesday, 10 February, 2016, 7:28pm
UPDATED : Wednesday, 10 February, 2016, 7:43pm

A Chinese consortium led by internet companies Beijing Kunlun Tech and Qihoo 360 Software has agreed to take over Norwegian browser company Opera Software in a cash transaction valued at US$1.2 billion.

It likely marks the first large-scale merger and acquisition deal made this year by Chinese internet companies not backed by one of the “big three” mainland players - Baidu, Alibaba Group and Tencent Holdings, collectively known under the acronym BAT.

The proposed acquisition of Opera, which counts more than 350 million users of its desktop and mobile browser worldwide, is supported by two Chinese funds - Golden Brick Silk Road (Shenzhen) Equity Investment, and Yonglian (Yinchuan) Investment.

Zhou Yahui, the chairman and chief executive of Kunlun, said the combination of Opera’s business with those of his company and Qihoo 360 Software would “solidify our leadership position in the international internet space”.

READ MORE: US Securities and Exchange Commission drops insider-trading case against Luo Haijian over Qihoo 360 shares

Kunlun is a leading mobile games developer and publisher, with growing operations in app distribution and peer-to-peer lending. This Shenzhen-listed company made a big splash last month when it bought a 60 per cent stake in US-based Grindr, operator of a popular dating and social networking app for gay men.

WATCH: introducing the new Opera Mini for Windows phones

Qihoo 360 Software, part of New York-traded Qihoo 360 Technology, supplies the leading internet and mobile security products in China by number of users.

In December, parent Qihoo 360 agreed to be acquired by a consortium of investors for US$9.3 billion and taken private within the first half of this year.

“There is a strong, strategic and industrial logic to the acquisition of Opera by the consortium,” said Lars Boilesen, the chief executive at the Oslo-listed company.

“We believe that the consortium, with its breadth of expertise and strong market position in emerging markets, will be a strong owner of Opera.”

The company, which forecasts total revenue of between US$690 million to US$740 million this year, generates 60 per cent of its sales from mobile advertising. It had the world’s largest advertising footprint in mobile after Google in the fourth quarter, according to data from MixRank.

The Chinese consortium’s buyout offer of 71 Norwegian krone per share represents a premium of about 53 per cent to Opera’s closing price on February 4.

According to Opera, its board of directors has unanimously decided to recommend company shareholders accept the deal.

In a report, BNP Paribas analyst Ling Vey-sern pointed out that “consolidation favours the strong” in China’s internet industry.

The BAT group represents the dominant force in mergers and acquisitions, with deals last year in highly competitive segments including mobile ride-hailing apps, online classifieds, online-to-offline (O2O) local services, and online travel.

“In 2015, BAT made close to 100 investments totalling US$16 billion, focusing largely on O2O and content,” Ling said.

Alibaba, for instance, agreed in December to buy the South China Morning Post and all other media assets from the SCMP Group.

Efforts by Kunlun and Qihoo 360 to further expand their operations overseas through a major acquisition, such as Opera, seems to prove that BAT’s highly calculated investment strategy has been taken to heart by China’s up-and-coming internet giants.