Sogou, China's third largest search engine, is reportedly for sale and attracting strong interest from several big Internet companies.
A takeover by any of those larger competitors would weigh heavily on other market players, an analyst told the Global Times Thursday.
Bidders for Sogou are Baidu, China's top Internet search engine; Qihoo 360, the second largest search engine; and Tencent, known for its popular instant messaging service QQ, news portal sina.com reported on Thursday, citing sources with knowledge of what could be a blockbuster deal for China's Internet community.
Qihoo has offered $1.4 billion for the acquisition, but Baidu is expected to make a more generous offer, and Tencent does not want Sogou fall into hands of Qihoo, according to the report.
NASDAQ-listed Sohu Inc, Sogou's parent company, saw its share price soar by 7 percent on Wednesday following the auction rumor.
Sohu told the Global Times on Thursday that Wang Xiaochuan, CEO of Sogou, had already refuted rumors about the sale, calling them "not credible" on his Weibo late Wednesday.
Baidu declined to comment, and Qihoo and Tencent were not immediately available for comment by press time.
Qihoo has been developing rapidly since last year, seizing more than 10 percent of search market share from Baidu with its PC-installed security software and browser service, said Dong Xu, an Internet researcher at Analysys International.
A Sogou takeover would enable Qihoo or Tencent to gain more advertising revenue through a larger search engine market share, Dong told the Global Times on Thursday.
For Baidu, acquiring Sogou would just be a defense strategy against competition from Qihoo, she said.
"Baidu's single search engine-led growth model is highly risky and creates a sense of crisis when facing competition from Tencent and Alibaba Group, which enjoy business diversification in the areas of social networking and e-commerce and have strong customer loyalty," Dong noted.
Sogou's advertising revenues doubled in 2011 from a year ago and increased 90 percent in 2012, beating the industry's average growth rate of 60 and 40 percent in those respective years, Dong said.
Baidu, Qihoo and Sogou are now the top three search engines, with market shares by April of 67.21, 14.94 and 9.15 percent respectively, according to CNZZ, an Internet market intelligence agency. Tencent's soso.com ranked No.4 with a tiny 3.95 percent share, followed by Google.
Zhong Lei contributed to the story.