The Chinese rumor mill has been in overdrive the past few days regarding a potential partnership between search engine Baidu and security company Kingsoft, and Kingsoft has just stoked the flames with a voluntary announcement (PDF) that confirms it is in talks with “independent third parties” about a possible deal.

The statement, which we’ve reproduced in full below, says that the company is in “preliminary discussions” with potential partners. It notes that the deal, which may or may not materialize, could be a “notifiable transaction”. Since a final agreement has yet to be reached, shareholders and investors are advised to take care.

A partnership between Baidu and Kingsoft would be a significant move because it would unite two of Qihoo 360’s strongest competitors. Qihoo entered the search market last year, challenging Baidu’s near-monopoly. Meanwhile, Kingsoft is the number two security software maker in China, behind only Qihoo.

Chinese media have suggested that Kingsoft investor Tencent is on board with the possible Baidu link-up. Reports have also claimed that the deal would include a capital investment in Kingsoft from Baidu, which could certainly afford to purchase a stake in the company. Tencent and Baidu cooperating seems odd at first glance since they’re also competitors, but it could be an “enemy of my enemy is my friend” situation, as Qihoo is notorious for having bad blood with most of the other Chinese industry players.

The rumors have also picked up momentum as speculation has arisen that Qihoo and Google have teamed up. However, any agreement between Qihoo and Google is likely to be a basic partnership, rather than full-fledged cooperation, as the two companies have substantially different company cultures. Qihoo CEO Zhou Hongyi has called the rumored partnership between Kingsoft and Baidu “the biggest joke of the Chinese Internet”, while challenging Baidu to compete with it head-on in the security industry and let it compete fairly in the search space.

Baidu declined to comment on rumors when contacted regarding the possible deal with Kingsoft.

Here’s Kingsoft’s complete statement:

This is a voluntary announcement made by Kingsoft Corporation Limited (the “Company”) .

The Company is now in preliminary discussions with independent third parties relating to a possible disposal. If materialised, the possible disposal may or may not constitute a notifiable transaction for the Company.

The Company will make further announcement as and when required in accordance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

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