M&A

Spitting mad

Qihoo’s Zhou fires back in latest ‘saliva war’

Jiang Chao staying cool

Staying cool: Jiang Chao

China’s netizens are no strangers to their country’s tycoons trading derisory messages on social media. The Xiaomi-LeTV rivalry is a good example. The smartphone maker and the internet media firm have been expanding into each other’s territories. Both companies have signalled an intention to make electric cars too. Hence there were heated exchanges earlier this year, leading to the unexpected accusation from LeTV’s founder Jia Yuting that his counterpart at Xiaomi, Lei Jun, had “a serious crush” on him (see WiC268).

Now there’s an even fiercer “saliva war” (the term used by netizens for such disputes). This time it involves M&A agreements between Qihoo 360, its mobile phone partner Coolpad and (again) LeTV.

The love-hate triangle was created when both Qihoo, a New York-listed software provider, and LeTV announced they would enter the smartphone market. Both identified handset firm Coolpad as an important partner.

Qihoo invested $409 million in a joint venture with Coolpad last December. But before Qiku – as the joint venture was branded – was able to launch its first devices last month, the relationship between the two appeared to have soured. That’s because the management of the smartphone maker agreed to sell an 18% stake in Coolpad to LeTV for about $350 million in June.

Qihoo made no secret of its displeasure. For $409 million it had taken a minority stake in a subsidiary of Coolpad. But LeTV spent $350 million to become the second- biggest shareholder at parent level.

Regular WiC readers will be familiar with Qihoo’s chairman and chief executive Zhou Hongyi. The 45 year-old loves to pick a fight with his larger rivals (see WiC178 for his tussle with Baidu, or WiC147 for his legal battle with Tencent). So not surprisingly, he’s been more than willing to poke his rivals in the eye over the Coolpad-LeTV deal

Before Coolpad had even announced its tie-up with LeTV, Zhou was messaging his WeChat friends warning that he would “[expletive] straight back” anyone trying to “screw” him, according to the Wall Street Journal. Addressing questions about Qihoo’s own relationship with Coolpad, Zhou was a little more oblique in his disdain, lamenting that “there is no love in Dongguan” (a Chinese city known for its prostitution trade).

Coolpad has tried to calm things down and its chairman Jiang Chao wrote several pieces on weibo suggesting that Zhou had been well informed of Coolpad’s decision to court LeTV.

To this claim Zhou’s riposte opted for analogy rather than personal abuse: “The little brother tells his big brother that he is going to fire a nuclear missile. The surprised big brother asks ‘When is the launch time’? But the little brother is already counting down: 5, 4, 3, 2…”

At a more practical level Qihoo said it would exercise a put option that requires Coolpad to buy out Qihoo’s entire 49.5% stake in Qiku at twice its fair value, that is to say, $1.485 billion.

The Wall Street Journal says that the dispute reflects the simmering tensions in the smartphone market, which is plagued by plunging prices, slowing sales and too many brands. But the Economic Observer wonders if the row doesn’t say something more about business life in China. Zhou’s belligerence may not help his case but the newspaper hints at a sympathetic ear for some of his complaints. “The dispute in 2011 over Alipay’s ownership stoked heated debates. And now this latest commercial battle [between Qihoo and Coolpad] has again got the world worrying that Chinese entrepreneurs don’t respect the spirit of contracts,” it suggested, referring to events four years ago when Jack Ma transferred ownership of Alipay into a separate company that he controlled, amid disagreements with Alibaba shareholders Yahoo and Softbank (see WiC112).

Could a truce be in the offing in the latest row, however? Thepaper.cn reports that Qihoo and Coolpad have been in talks to sort out their differences. “Even if it has been rainy and cloudy, eventually we will see the sun,” Coolpad’s Jiang recently wrote on his weibo.

KEEPING TRACK: WiC reported last week that Qihoo 360 was embroiled in yet another public spat with a business partner. The clash, this time with smartphone maker Coolpad, has just ended with an unexpected twist.

The pair will remain partners in their Qiku smartphone JV. But Qihoo’s stake will increase to 75%, while Coolpad’s will reduce from a majority to 25%.

Coolpad didn’t disclose the financial terms of the restructuring, which apparently has seen the Hong Kong-listed firm selling part of its Qiku stake to Qihoo. However, it did suggest that it expects a $200 million loss from the transaction. One of the likely reasons for the financial setback, analysts suggest, is that Coolpad is selling down the stake at a price well below the fair value of Qiku (or the value had Coolpad instead sold the stake to a third party). The JV was only set up last December.

KEEPING TRACK: WiC reported last week that Qihoo 360 was embroiled in yet another public spat with a business partner. The clash, this time with smartphone maker Coolpad, has just ended with an unexpected twist. The pair will remain partners in their Qiku smartphone JV. But Qihoo’s stake will increase to 75%, while Coolpad’s will reduce from a majority to 25%. Coolpad didn’t disclose the financial terms of the restructuring, which apparently has seen the Hong Kong-listed firm selling part of its Qiku stake to Qihoo. However, it did suggest that it expects a $200 million loss from the transaction. One of the likely reasons for the financial setback, analysts suggest, is that Coolpad is selling down the stake at a price well below the fair value of Qiku (or the value had Coolpad instead sold the stake to a third party). The JV was only set up last December.


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