Beijing-based Qihoo 360 Technology Co. is in the early stage of negotiations to purchase Sohu.com Inc's Sogou unit. The development is said to aid the software developer in its bid to contend with Baidu Inc for China's internet searches.

Alex Xu, Qihoo's Chief Financial Officer, said in a Bloomberg report that any transaction would be paid for in stock and cash. Xu did not state any value for the transaction.

However, an analyst at iResearch, an Internet consulting group, said that Sogou is valued between US $1 billion to US $ 1.4 billion.

If the deal pushes through, China would see the union of its second and third biggest search engines. This would then create a bigger competitor against Baidu, which currently holds over 80% of China's internet searches.

Elinor Leung, CLSA Ltd's head of Asia telecommunications and Internet research, said "It makes strategic sense for Qihoo to pursue this deal."

"If they can acquire it they will exceed 20 percent market share for search. They can scale with it," Leung added.

Back in May, Sohu said that it is looking for strategic investment in Sogou as it concentrates on entertainment and online media to connect with clients watching video on their mobile devices.