Commentary

Chinese-American Technology Courtship Will Heat Up

Tech Market WatchBy Perry Wu
Several well-known American companies have recently purchased stakes in Chinese online companies. Like tremors before an earthquake, these deals just might be a pre-cursor for bigger things. Let's look at a few of these tech deals.

Last month, Amazon struck a deal to acquire Joyo.com for US$75 million. Joyo.com, China's largest online bookseller, is currently the Amazon of China, and now it actually is Amazon. Joyo will now be able to trample its competition, especially Dangdang.com who are probably feeling pretty pathetic for not accepting Amazon's buy-out bid when it was originally offered to them.

Also last month, there were rumors that Yahoo was considering buying a stake of Sina.com. Sina denied the rumors and after a few days, the rumors subsided. Although both Sina and Yahoo have agreed to run an online auction site, apparently the relationship will go no further, for now.

And just about six weeks ago, Barry Diller, the American dealmaker, had his InterActive Group announce a US$60 million investment in eLong, a Chinese online travel site. This sort of cash infusion just may give eLong the ammunition to challenge Ctrip for supremacy in the Chinese online travel business.

Then there are the folks at Google. Google is now a cash-rich newly minted public company. But Messrs. Sergei Brin and Larry Page have already proven their eagerness to chart their own path, and to disregard what everybody else does. Their nakedly honest style of composing Google's IPO prospectus earlier this year, and their logical but unusual Dutch-auction style IPO have set them apart from the crowd. They are probably the least likely of all the major U.S. online companies to venture foolishly into China. After all, at their headquarters in California they have already created excellent Chinese-language News and Web search tools without the need for China-based operations. However they did take a stake in Baidu.com, but perhaps this was to take advantage of the local currency regulations and accessibility to local advertisers.

Nevertheless, all the deal-making that has happened thus far is nibbling at the edges. Even with these recent deals, there has yet to be that one mega-deal that makes the cover of financial news magazines and makes mega-buzz from New York to Shanghai.

For example, even though Amazon's US$75 million investment is a nice chunk of change, it is not even one-half of one percent of Amazon's current market value of US$16 billion. So even if the deal blows up on Amazon, Jeff Bezos will still manage to make his mortgage payments on at least four of his homes.

And if Yahoo were to gobble up Sina completely, at Sina's current market valuation of just over US$1 billion, that would be just over 2% of Yahoo's total market valuation of US$ 44 billion. With this kind of proportion, one could easily see Yahoo making a move on Sina or a similar company, especially since it is already showing interest in China through its online auction site. But so far Yahoo has not flinched.

An American takeover of a large Chinese online company just hasn't happened yet. But recent market conditions have surely increased the probability that there will be a mega-deal. The shares of American companies like Yahoo and eBay hover at 52-week highs, while the shares of Chinese online companies like Sina and Sohu hover not far from 52-week lows.

You don't need a crystal ball to forecast that if this situation persists, an enterprising banker will eventually convince an American executive to act. Then the time will arrive for the American to part with some over-valued stock in exchange for some Chinese company's not-as-overvalued stock. There are undoubtedly armies of interested bankers and libido-overloaded Internet executives who are trying their best to do just this. Throw in a dash of Mary Meeker mania and you have all the ingredients for a mile-wide China Internet bubble.

It'll happen.

About the author:
Perry Wu is a writer and correspondent for ChinaTechNews.com and can be reached here at the site. Perry Wu does not hold any positions, long or short, on any of the Chinese or American company securities mentioned in this article.

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