America Online is expected next week to announce a $200 million joint venture with Legend Holdings, China's largest computer maker. The huge deal is likely to force the country's three Nasdaq-listed portals to seek partners in order to compete.
Although AOL and Legend are publicly tight-lipped about the venture, executives involved in it say the information that was leaked a month ago in an errant e-mail sent to BetaNews.com is accurate.
The two companies each would invest $100 million and be equally represented on the board of the new company, but Legend would own 52 percent of the venture in order to steer clear of China's strict foreign-ownership laws in the Internet sector.
Analysts say that AOL, in the same strategy it used to approach the U.S. market, aims to bundle its software and services with the computers that Legend, a respected domestic brand, sells in China.
For months, analysts have been saying that the promising but unprofitable Chinese portal market is headed for massive consolidation. And for months, nothing happened. Now, finally, the shadow dancing might be coming to an end.
On Monday, one of the major portals, Sina, announced the departure of its founder and CEO, in a move which "could suggest that there is an acquisition looming," according to Matt Adams, Internet analyst at Credit Suisse First Boston in Hong Kong. Sina didn't elaborate on the departure of its founder, but it is perhaps no accident that his successor has a background in venture capital and deal making.
AOL and Legend are both talking to the three Chinese portals, Sina, Netease and Sohu, about the possibility of acquiring them to give their new venture ready-made Chinese-language content.
Netease is their most likely target, but the portal is also talking to I-Cable Communications, a division of Hong Kong-based Wharf Holdings.
Another possible buyer in the market is Chinadotcom. It has some $450 million in cash and has said that it is interested in making acquisitions but has yet to put its money on the table.
