Baidu set to shell out nearly $2bn for app store operator

So you thought Facebook’s Instagram buy was big? Or maybe you were more impressed with Yahoo!’s Tumblr acquisition? Well those are about dwarfed by Chinese search giant Baidu’s planned US$1.9-billion buyout of 91 Wireless, a Chinese developer of app stores.

The deal, as The New York Times points out, is most likely part of the company’s bid to expand into other online sectors and better compete against the likes of Alibaba and Tencent.

“Baidu is not as well established in the mobile Internet space as the desktop Internet space,” Andy Yeung, an analyst at Oppenheimer & Co Inc in New York told Bloomberg. “It’s a complementary strategy to enhance Baidu’s status in the mobile ecosystem.”

“Mobile app stores are an important entry point to the mobile Internet, and are therefore of great strategic interest to Baidu,” Kaiser Kuo, a spokesman for Baidu in Beijing, said in an email to the financial news outlet.

The acquisition is the latest and most lucrative in a series of buyouts which include PPStream’s online video business, bought for US$370-million in May.

Baidu today meanwhile confirmed that signed a legally binding memorandum of understanding to acquire majority ownership of 91 Wireless from NetDragon Websoft, a Hong-Kong based company with a series of gaming and online investments in mainland China.

The memorandum calls on Baidu to pay NetDragon US$1.09-billion for its 57.4% stake in 91 Wireless and around 800-million to the remaining stakeholders, who are not named. The parties have settled on a 14 August date for the deal to go through.

91 Wireless, founded in 2007, is believed to be a key part of NetDragon’s mobile internet business, which brought in US$23.5-million in the first quarter of this year. The company runs 91 Assistant and HiMarket app stores in China, both of which operate on Android.

91 Wireless also develops its own apps, including PandaReader, which allows you to read and bookmark documents in a variety of formats.

Given it’s importance, it’s hardly surprising that NatDragon’s shares fell 17% in the wake of the announcement.

“People were originally expecting a spin-off,” said Billy Leung, an analyst at RHB Research Institute Sdn in Hong Kong. “After the sell off, NetDragon won’t be holding the business any more, so technically NetDragon won’t be profiting from any growth from the company.”