Youku to buy Tudou, creating China online video giant

SHANGHAI - China's top two online video companies are joining forces, with Youku.com buying smaller rival Tudou Holdings Ltd in an all-stock deal worth more than $1 billion, creating an industry leader with more than a one-third share of a market that is losing money as it battles rising costs

The two U.S.-listed companies have been bitter rivals, locking 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.

Bringing the two together is a good move for a highly competitive industry with many players fighting over more than 450 million Internet users, analysts said.

"This creates China's biggest video site, but it doesn't create a YouTube - they still have less than 50 percent market share," said Bill Bishop, an independent analyst based in Beijing.

Shares of Tudou, which is 9 percent owned by Sina Corp, soared 159 percent in early trading on Monday in New York to $38.30 from Friday's $15.39 close. Partly reflecting the tough competition, Tudou shares, which debuted in August, had consistently traded below their IPO price of $29 each.

Youku stock surged as well, gaining 15 percent to $28.80. Shares in Baidu, China's top search engine, lost 1.2 percent while Renren Inc, dubbed China's Facebook, saw its stock gain 4.3 percent.

Youku currently leads the fragmented Chinese online video market with a 21.8 percent share, ahead of Tudou's 13.7 percent, according to Internet researcher Analysys International.

"We know online video is way too competitive. There are 10 players, where there should be only one to two," said Michael Clendenin, managing director of Shanghai-based RedTech Advisors.   (Reuters)