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Venture-backed Youku, Tudou seal $1.04bn merger

13 Mar 2012

Venture capital-backed Youku and Tudou, China’s biggest online video businesses, have agreed to merge in a $1.04bn deal that stands as the country’s largest stock swap transaction.

Under the terms of the deal, Youku would be the surviving company in an all-share deal. Following the agreement, the company’s shareholders will own 71.5 per cent of the combined entity, and Tudou’s investors will own 28.5 per cent.

The cost of buying and producing content has incurred huge costs for both companies in recent times, in addition to the cost of financing infrastructure expansion to keep up with advertising demand. A merger is a cost-effective solution for both businesses.

Tudou raised $174m through its initial public offering on NASDAQ in August last year. Despite the current market turmoil, Tudou sold six million American Depositary Shares at $29 apiece, exceeding the $100m to $150m target set earlier this year.

The company raised $50m in a Series E financing round in August 2010. Singapore sovereign investor Temasek put up $35m, and the remaining $15m in funding came from the company’s existing investors.

These included IDG Technology Venture Investment, Granite Global Ventures, General Catalyst Partners, Capital Today, Jafco Asia, KTB Ventures and JAIC.

In total, Tudou has raised $135m in funding since the website went live five years ago, representing the largest investment to date in an online video business in China.

Youku received $40m of private equity funding in a first tranche of a growth financing round in December 2009 led by Chengwei Ventures. At the time, the company had raised $110m in private equity funding, and $10m in venture debt.

The first closing was raised entirely from existing investors. Besides Chengwei, those investors include Brookside Capital, Maverick Capital, and Sutter Hill Ventures.

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