Markets in the US reacted positively to the Youku Tudou merger as shares in both firms sky-rocketed. Tudou (NASDAQ:TUDO), the smaller of the two Chinese video-sharing sites which is effectively being swallowed up by Youku, has just closed at an historic high of $39.48, nearly tripling its pre-announcement levels. Youku (NYSE:YOKU), meanwhile, has just ended the day at $31.85.
According to The Street and other sources, the merger is worth $1.1 billion. Investors seemed optimistic that the combination of China’s two social video sites would be a strong force, and that the deal might eventually help cut massive bandwidth and content costs. But the merger is mostly taking place at boardroom level – the two respective sites will continue as normal, and for some time will still have competing and overlapping interests, especially in terms of licensed TV and movie content that the two sites have already purchased.
When the move is complete – as we reported yesterday – the new company’s two sites will have the dominant market share among Chinese video-streaming services. Yesterday we used iResearch stats to speculate that the company would effectively dominate 49 percent of the sector. But it should be noted (and thanks to Will Moss for pointing this out) that Analysis International has different figures which suggest that Youku Tudou Inc (to be NYSE:YOKU) will dominate only 35.5 percent of the market.
Piper Jaffray analyst Gene Munster said, in a note to clients:
Overall, we view the Youku/Tudou acquisition as a net positive for the company as we believe it eliminates a significant competitor in content acquisition and will make Youku far and away the largest online video company in China.
The deal dictates that Tudou shareholders will swap their shares for those of Youku at a value of roughly $39.88. Youku and Tudou shareholders will own 71.5 percent and 28.5 percent of the combined entity, respectively.
In a special Monday conference call timed for US investors, Youku’s Victor Khoo said the deal would benefit the whole online video sector in China. And one Tudou executive said that it would result in $60 million in cost savings for the merged company.
Elsewhere on the Chinese web, netizens on Weibo reacted with some bemusement to the country’s largest ever web deal, jokingly asking which two behemoths might be next to hook up. “McDonalds merging with KFC!” quipped one; “How about Cola and Pepsi?” joked another.