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Baidu is raising money. Let's hope that it's going toward a worthy cause.
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Baidu (BIDU +0.01%) is making the most of today's low interest rates to build up its capital.
China's leading search engine announced that it is raising $1.5 billion through a pair of public debt offerings. It's hard to beat the rates. Half of the money is coming from notes due 2017 bearing an interest rate of 2.25% and the other half is due in 2022 and will set the company back 3.5% in annualized interest.
The rub, though, is that Baidu doesn't need the money. It closed out its latest quarter with nearly $3.4 billion in cash and marketable securities, far more than it needs to cover its modest debt.
Inside Baidu's shopping list
Baidu didn't have to raise this much if it simply wanted to pay down its debt. In fact, it could've just cracked open into its much larger piggy bank if that's what this is truly about. No, Baidu is likely going to be on the hunt for strategic acquisitions, and it isn't hard to pick out some of the obvious targets.
Making a move
Baidu can use the boost after its disappointing quarterly report. The fallen dot-com darling missed Wall Street's top-line figure, and spooked investors by projecting a sequential dip in revenue.
Buying Qihoo 360, Yandex, or Renren would turn that trend around, even though all three companies would dilute earnings in the near term.
Baidu may not have much of a choice. Its stock is dirt cheap, and investors don't seem to care. Baidu is now trading for less than 20 times this year's earnings and just 15 times next year's profit target. Did you ever think we would get to this point?
However, the reasons why we got to this point can also be solved by any of these three purchases.
Qihoo 360 would be the ideal candidate. Baidu would not only be able to take over the growing market share of Qihoo 360's search engine, but also use its browser and online security tools to broaden its reach with PC users and make a splash in mobile.
Yandex is about geographical diversification. Baidu has tried to make an overseas push on its own, but it has yet to make a dent in Japan. It's still too early to tell how ventures in other countries are faring. Buying Yandex would make Baidu a global player, even if ownership issues for two companies with restrictive governments may have some rough patches.
As for Renren, even Google has invested heavily to make a dent in social networking with Google+. The company's lack of profitability is a concern, but it's also why it would be the cheapest of these three potential purchases.
Baidu isn't just raising money because it looks good on a balance sheet. It's going shopping.
Betting on China
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