Credit: Youku Inc. ( YOKU , quote ) and Tudou Holdings Limited ( TUDO , quote ) announced today that they have signed a definitive agreement for Tudou to combine with Youku in a 100% stock-for-stock transaction. The combined entity will be named Youku Tudou Inc., and will continue to be listed on the NYSE under the symbol "YOKU".
[caption align="alignright" caption="Youku has a Very Good Day."]
Under the terms of the agreement, each Class A ordinary share and Class B ordinary share of Tudou will be cancelled in exchange for the right to receive 7.177 Class A ordinary shares of Youku, while each American depositary share of Tudou will be cancelled in exchange for the right to receive 1.595 American depositary shares of Youku. Youku shareholders will own 71.5% of the combined entity, while Tudou shareholders will own 28.5%,
Youku CEO Victor Koo said, "Youku Tudou Inc. will represent a differentiated leader in the online video market in China with the largest user base, most comprehensive content library, most advanced bandwidth infrastructure and strongest monetization capability within the sector." According to Koo, Tudou will retain its own brand identity and platform, giving the combined company China's two top brands in online video.
Youku has been on the move recently, closing content deals with Lionsgate ( LGF , quote ) and Fox Home Entertainment ( NWS , quote ). However, both it and Tudou have struggled to make a profit in online video, which has both high competition and high costs for popular content.
Buying Tudou may give Youku the critical mass it needs, but analysts are skeptical. China web expert Bill Bishop told the Wall Street Journal the deal puts "two unprofitable companies together" to make "one unprofitable company," and that Youku still needs to develop a viable business model.
Wall Street embraced the move, with shares of TUDO rising 156% to $39.48, and YOKU rising 27% to $31.85. The Global X China Consumer ETF ( CHIQ , quote ) devotes a little over 3% of its holdings to YOKU, and also rose slightly.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
