Qihoo Succeeds, Fails In Bid For Norway's Opera

| About: QIHOO 360 (QIHU)

Summary

Qihoo 360 was being more low key in announcing the failure of its bid for Norwegian browser maker Opera.

Following the decision to scrap the previous sale, the two sides announced a smaller deal that would see the Chinese group buy about half of Opera's assets for about $600 million.

The company simply couldn't provide the level of funding it had previously promised, hence the decision to downsize the original deal.

Bottom line: A Chinese group's decision to downsize an earlier deal to buy Norway's Opera was likely due to insufficient funds to complete the deal, but will still give Qihoo (NYSE:QIHU) an important new browser asset in its drive to go global.

Just a day after trumpeting its successful privatization from New York, software security specialist Qihoo 360 is being more low key in announcing the new failure of its bid for Norwegian browser maker Opera. In fact, Qihoo was really just one member of a group that bid $1.2 billion earlier this year to buy Opera, owner of the world's fourth most popular web browser (previous post). Following the decision to scrap the sale, the two sides have simultaneously announced a smaller deal that would see the Chinese group buy about half of Opera's assets for about $600 million.

The turn of events looks a bit strange, and is undoubtedly leaving many observers scratching their heads. After all, the sale wasn't rejected by any regulators, even though the official reason for ending the deal was failure to get necessary approvals by the group's own self-set deadline. What's more, the new deal worth $600 million will still see the Qihoo group get Opera's prize asset, its popular web browser.

My guess is that the group, which also included Golden Brick Silk Road and Kunlun Tech, may have suddenly found itself short of cash after Qihoo's management just spent a hefty $9.3 billion to privatize the company from New York last week. That buyout was the biggest privatization in history of a US-listed Chinese company, and posed huge challenges for Qihoo's management due to its huge size.

We'll return to that part of the story shortly and what this revised deal might mean for the Chinese buyers. But first let's review the actual story, which saw Opera say the sale originally announced in February has officially failed (English article, Chinese article). Both sides could have easily extended the deadline to give the appropriate regulators more time, but Opera said it made the mutual decision to scrap the deal instead.

Opera shares tanked by 10 percent after the announcement, and at their latest price of 54 kroner are now 24 percent below the 71 kroner offer price originally made by the Chinese group. The stock is actually still up slightly from pre-offer levels since the original price represented a 46 premium to earlier levels. But it could easily give back even those gains and possibly drop lower as the company is broken up in this new deal.

Company Break-Up

Under the new deal, the Qihoo group will pay $600 million for certain parts of Opera's consumer business, including the mobile and desktop versions of its popular browser that the company says has 350 million users. But the buyer group won't get Opera's advertising, games and television units.

Qihoo was the main strategic investor in this deal, since it operates a browser that is at once one of the most popular in China but at the same time is widely scorned by the rest of the world due to its invasive features. Qihoo also probably would have liked Opera's advertising business, since it's trying to monetize its online search service that has quickly become quite popular but doesn't earn much money.

Kunlun also had a strategic interest in the deal, since it's a game developer and thus was probably interested in Opera's game business. Thus one could deduce that Qihoo is the relative winner in the alternate $600 million deal. That's because it will gain access to a globally accepted browser to complement its own browser business, even though it won't get the advertising monetization technology.

Kunlun, by comparison, looks like the relative loser, since it was probably eyeing Opera's gaming business that is excluded from the smaller deal. All of that brings us back to my original assertion, namely that Qihoo was probably the main backer behind this deal and suddenly found its finances stretched after its just-completed privatization. I suspect a big portion of funds for the new $600 million deal are still coming from Qihoo, perhaps up to two-thirds. But the company simply couldn't provide the level of funding it had previously promised, hence the decision to downsize the original deal.