QIHU is making a strong challenge to BIDU. Their search engine are returning better results than BIDU especially when you try to search for blog/twitter(weibo as in China). Currently QIHU is not putting any AD on their search webpages, and BIDU has been charged by posting illegal/fraud AD.
In addition to the challenge to BIDU's search engine, QIHU is coming up with promising multi media service including recently launched music service and its well established leading position in streaming service on PC and tablet.
BIDU can definitely try to buy QIHU (I double Mr. Zhou would sell it in near future), but I don't see why BIDU price should pop after acq. Remember no matter it's a cash buy or stock swap, buyer's price should dip when acq.
If QIHU's mkt share has peaked then BIDU does not need to buy them. If it has not, Zhou is not going to sell for anything reasonable and i dont blame him. In either case, it doesnt make sense for BIDU to buy QIHU