Chinadotcom Corp, China's largest Web site operator, has joined I-Cable Communications Ltd and another company in bidding to buy Netease.com Inc, a move likely to signal the shakeup of China's Internet industry, the Asian Wall Street Journal said.
The report, which cited unidentified people familiar with the talks, indicates Netease is still up for sale even after two top executives resigned yesterday after the company widened an investigation into the possible misreporting of revenue.
China's Web site operators such as Netease, Sohu.com as welll as Sina.com are trying to fend off competition ahead of China's entry into the WTO, when Beijing has promised to ease restrictions on foreign investment in Internet companies.
Sina.com, a rival to Netease, is already holding discussions to merge with Chinadotcom.
"Many companies are interested in Netease, Sohu and Sina with their low values," said Tommy Ho, an analyst at Vickers Ballas Hong Kong Ltd.
"If Chinadotcom were to buy any of these top three portals, its ranking in China will be largely improved."
Netease spokeswoman Liang Xiangnong declined to comment on the Journal report. "We don't have such information to provide," he said. Garman Chan, I-Cable's spokesman, also declined to comment as did Jane Cheng, Chinadotcom's spokeswoman.
The Journal report did not disclose the identity of the third company bidding for Netease.
The shares of Chinadotcom yesterday rose 0.8 percent to US$2.7, while Netease's American depositary shares fell 2 percent to US$2.
The sale of Netease has been complicated by the probe into the company's reporting of revenue.
The company posted a loss in the fourth quarter and warned that revenue in the first quarter would fall by as much as 21 percent as China's online advertising market slows.
Netease delayed reporting first-quarter results, saying one or more employees may have incorrectly reported the terms of several contracts with advertisers.
The company said yesterday Chief Executive King Lai and Chief Operating Officer Susan Chen resigned "to pursue other opportunities."
The company also said it is investigating whether it incorrectly counted US$3 million of its US$8.3 million in revenue posted last year.
Shares of China's biggest Internet sites have fallen by as much as 95 percent from their highs last year as they compete for declining online advertising revenue.
The market for online advertising has been estimated at about US$35 million this year, according to researcher International Data Corp.
Competition for advertising revenue is intensifying. AOL Time Warner Inc, the largest media and Internet company, this week said it is forming a venture with Legend Holdings Ltd to help China's biggest personal-computer maker provide Web access in China.
The venture will also sell ads, placing it in direct competition with Sina.com, Sohu and Netease.com.
Hong Kong's sole cable television provider, I-Cable Communications, is trying to buy Beijing-based Netease after hesitating to complete the purchase last week because of Netease's accounting and management problems, the Journal said.
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