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Tencent Buys $115 Million Kingsoft Stake to Expand Security

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July 7 (Bloomberg) -- Tencent Holdings Ltd., China’s biggest Internet company, agreed to buy a 15.7 percent stake in Kingsoft Corp. for HK$892 million ($115 million) to expand in computer-security services.

Tencent will buy 111.5 million shares from Kingsoft Chief Executive Officer Kau Pak Kwan and 66.9 million shares from non-Executive Director Cheung Shuen Lung, Kingsoft said in a filing yesterday. The deal is scheduled to be completed today, it said.

The purchase builds on Tencent’s leadership in China’s online-games and instant-messaging markets as the Shenzhen-based company boosts spending on services including computer security and electronic commerce. Kingsoft and Tencent together account for more than 20 percent of the local market for security software, second only to Qihoo 360 Technology Co., according to Morgan Stanley.

“Online security has become more important in China,” Morgan Stanley analysts including Richard Ji wrote in a report yesterday. The Kingsoft deal is “positive” for Tencent, according to the report.

Shares Climb

Kingsoft rose 9 percent to HK$5.45 at the 4 p.m. close in Hong Kong trading, the highest closing price since May 2010, after being halted yesterday pending the announcement. The shares earlier surged as much as 19 percent.

Tencent rose 0.1 percent to HK$214.80 and has gained 27 percent this year, trailing Chinese Internet stocks including Baidu Inc. and Sina Corp.

The company will double to 10 billion yuan ($1.5 billion) the size of a fund it set up this year to invest in technology developers, Chief Executive Officer Ma Huateng said last month. The company purchased a 16 percent stake in Elong Inc. in May to expand in online travel, after buying control of U.S.-based Riot Games Inc. in February.

Tencent will target growth in Internet security, e-commerce, search engines and social media this year, Ma said in March.

Kingsoft, based in Beijing, offers products including office software, Internet security and online games, and has research centers in cities including Beijing, Zhuhai, and Chengdu, according to its website.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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