Netease to join China dotcom sell-off

News of a Netease.com acquisition is further fueling the consolidation frenzy in China's battered dotcom sector

By CNN's Kristie Lu Stout

HONG KONG, China (CNN) -- Hong Kong's I-cable is reported to be in talks to buy China portal Netease.com, further fueling the consolidation frenzy in the battered sector.

William Ding, Chinese founder and majority owner of Netease, has agreed to sell his company for $85 million in cash, only slightly more than its current cash value, according to a news report.

I-cable, a Hong Kong pay-TV provider, is part of the Wharf Holdings group, which has interests in property, communications and logistics.

Murmurings of the deal-in-progress arrive as AOL prepares to formally announce its tie-up with China PC maker Legend and its FM365.com portal, a move that analysts say will spur a wave of merger and acquisitions for Chinese Net plays.

Netease in the bargain bin

William Ding has given the nod to a plan that would give I-cable 100 percent control of Netease for a bargain rate of $85 million, according to the Asian Wall Street Journal.

Analysts say the portal firm's low valuation is due to the fact that, like fellow dotcom companies, the current business plan is seen as wasteful.

Management at Netease declined to comment on reports of a proposed acquisition.

An I-cable spokesperson told CNN "there are no details on the matter at this moment."

I-Cable runs both a cable-TV service as well as an Internet broadband service. The company's interest in Netease may herald a greater shift in focus to broadband offerings.

'Vulture capitalism'

Analysts view the proposed deal as an order dictated from the boardroom, as more and more shareholders and investing institutions are pressured to write down dotcom investments and realize the little returns that remain.

"The venture capitalists are becoming vulture capitalists in a sense," said IT consultant Duncan Clark at Beijing-based BDA. "They are impatient to get a return."

Earlier this week, chief executive of China's leading portal Sina.com Wang Zhi Dong resigned to pursue other interests.

But market talk suggests that Wang moved aside so a more suitable CEO could take the reins of the company as it woos potential buyers.

"There are rumors that Chinadotcom wants to buy them," one Beijing-based analyst told CNN.

"Rumor is Wang wants to move aside to make that happen since he is too close to his baby."

"Clearly they have held talks," said another Internet analyst. "But there is no deal yet."

AOL-Legend to rock the sector

An upcoming formal alliance between Internet giant AOL and China's Legend has further rocked the industry. Analysts anticipate the deal will hasten merger and acquisition activity as local Web portals scamper to trim down and consolidate.

"The online advertising revenue market in China has taken a precipitous drop right now," Kristian Kender of Strategic Intelligence told CNN.

"Now with the AOL-Legend link up you have an 800 pound gorilla coming in and sitting on your living room couch in terms of advertising spend."

Analysts say all four Nasdaq-listed China portal firms -- Chinadotcom, Netease, Sina.com and Sohu.com -- need to cut costs to boost revenues in a crowded market that will only get more uncomfortable when AOL enters the fray.

All four Web sites are all vying for control of China's limited $100 million Internet advertising market.

The Nasdaq-listed Netease closed up 6.5 percent at $2.14 on Thursday.