This was a good time for StockRumors.com to revisit rumors of a possible buy out by Google, Inc. (NASDAQ:GOOG) or Yahoo!, Inc. (NASDAQ:YHOO), including a possible LBO given Baidu's large cash reserve.
As I mentioned above, Baidu holds 62% of the growing Chinese Internet search. The growth rate of Chinese Internet users is faster and also has a greater potential than that of the U.S. market. While the U.S. already has 200 million Internet users, there are only 110 million users in China, a number that is expected to more than double by 2010. Naturally, the company that would manage to capture that market would do well.
For Google, this would be weird. Back in June, Google has sold its 2.6% stake in Baidu. Don't get me wrong, Google could buy Baidu, it's got the resources (market cap and cash reserves) even after the purchase of YouTube for $1.6 billion. Buying Baidu would immediately increase Google's Chinese market share from 23% (and falling) to a stronghold in this growing market.
For Yahoo!, the acquisition would make a lot more sense. After its latest financial results, Yahoo! needs to re-accelerate growth and fast. Yahoo!'s current share in China is less than 12% so with Baidu it would make it over 70%. Very attractive. However, Yahoo!'s market cap and cash reserves are much lower than that of Google's and should there be a bidding war, this might present a problem for Yahoo!.
The question is the price that would (should) be paid for Baidu. Baidu's current market cap is $2.8 billion but I would assume that despite the current high P/E ratio, a premium might still be attached given Baidu's growth rate and potential.
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Reader Comments (Page 1 of 1)
11-01-2006 @ 8:18PM
Steve said...
The CEO of Baidu was on CNBC a few hours ago saying he has had no contact with Google at all.
You would think that it would be an exciting company for Google long term. Yahoo is definitely a stronger name in Asia, but I imagine that may begin to change over the next few years.
11-02-2006 @ 9:06AM
XiaLong said...
I really doubt that BIDU will want to be bought out. China is a very different country and it has a very strong nationality to preserve its culture and its culture is very different because of its long history, which makes it difficult for foreigners to be "localized", especially the internet, which tied to the culture tightly. Think about it, MSN, yahoo, google, great brands, but their portals have never been successful in China, instead, it is Netease, SINA, SNDA, ....
I think BIDU will grow on its own, the Chinese is proud of their culture and that's one of the reasons that BIDU is more popular than any other search engine and keeps growing fast.