Youku.com, China's largest online video company, will buy second-ranked Tudou Holdings in an all-stock deal valued at more than US$1 billion (S$1.26 billion) to fortify its position in the world's biggest Internet market.
Holders of Tudou's American depositary receipts (ADRs) will receive 1.595 ADRs of Youku for each Tudou ADR they own, the two companies said in a joint statement yesterday.
The transaction, which requires the approval of Youku and Tudou shareholders, is expected to be completed in the third quarter, the companies said.
Based on Youku's closing price last Friday, the deal values Tudou at US$39.89 a share, or 159 per cent above its last close. Singapore's Temasek Holdings trimmed its stake in Tudou to about 17 per cent from 21 per cent after the latter's public offering last year, according to the prospectus.
Youku chief executive Victor Koo said: "We expect to see significant synergies across a number of areas including leveraging licensed content over a larger user base and realising efficiencies in bandwidth management and other common expenses."
Once the deal is completed, the combined entity will be named Youku Tudou and headed by Mr Koo.
Tudou chief executive Gary Wang will join the new entity's board of directors. A successful conclusion of the deal would see the end of bitter rivalry between the two firms, which have locked horns in courtroom battles over alleged copyright infringement and unfair competitive practices.
Both companies this month reported a net loss for last year, pinched by rising costs for Internet bandwidth, content and mobile video services.
So, bringing the two companies together is a good move for a highly competitive industry fighting over more than 450 million Internet users, analysts said.
"We know online video is way too competitive. There are 10 players, where there should be only one to two players," said Mr Michael Clendenin, managing director of Shanghai-based RedTech Advisors.
"At the end of the day, after this merger there are still too many players in the industry," he said, noting other players such as Sohu.com, Baidu and Tencent Holdings.
"These are not small, insignificant players. So, even though this is a step in the right direction in terms of consolidation, there's still a long way to go."
