Baidu and Tencent Thought to be Vying to Acquire Mobile Antivirus Expert


NetQin acquisition rumors

Antivirus products and services have been a renewed battleground in China in the past couple of years, enveloping several of the country’s top web businesses. According to rumors in the industry heard by TechinAsia, that battle is now taking the form of these companies vying to acquire NetQin (NYSE:NQ), a China-based expert in mobile antivirus apps. Both Baidu (NASDAQ:BIDU) and Tencent (HKG:0700) are thought to be in the running, but the market value of NetQin is proving to be a bone of contention.

NetQin executives even addressed the rumors late last week in the earnings call after revealing their Q1 2013 financials. Directly alluding to the suitors, NetQin co-CEO Omar Sharif Khan said during the call:

Over the past several months, NetQin has been approached by both strategic and financial investors for potential investment opportunities with us, while we appreciate this interest. We remain focused on delivering shareholder value to successful execution of our strategic planning initiatives. We will not fail on delivering shareholder value.

A few minutes before saying that, Khan lamented “a significant gap that exists between the market valuation and our business results”, which could well be the sticking point in negotiations with potential major investors or acquirers. NetQin is currently at $8.25 per share with a market cap of $363 million. Khan elaborated on this pricing:

We’ve also always believed that if we continue to deliver stellar results and growth, the market valuation of the company would appropriately reflect the fundamentals of the company. As both the shareholders and executive management of NetQin, we are not at all satisfied with a significant gap that exists between the market valuation and our business results. Frankly, it’s unacceptable. I want to be crystal clear, we are absolutely committed to creating shareholder value and we will put in a relentless effort to closing the before mentioned gap.

Asked by Oppenheimer analyst Andy Yeung about a 100 percent acquisition, Khan declined to reveal more except for saying that “multiple parties” had shown interest in both financial and strategic investments.

We’ve reached out to Baidu and Tencent about these rumors.

Tencent began pushing strongly into the antivirus market in China in 2010, setting themselves up on a collision course with well-known software maker Qihoo (NYSE:QIHU). After Qihoo launched a search engine last summer, Baidu has retaliated in recent months with antivirus products for Windows PCs aimed at both Chinese and overseas consumers.

Acquiring NetQin would propel Baidu into mobile antivirus products on the Android and iOS platform (where it currently has nothing), and would boost what Tencent already has in terms of mobile antivirus offerings.

NetQin shares fell 14 percent from Wall Street seeing its Q1 financials on Wednesday night to close of trading on Friday. That’s despite revenues rising to $33.2 million in Q1, with operating income up to $2.3 million.

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