Online video site Youku buys rival Tudou

Youku (YOKU.NYSE) and Tudou (TUDO.Nasdaq), China’s two largest online video companies, announced plans to merge in what will be the internet industry’s biggest deal via a stock-swap agreement, the Financial Times reported. Youku shareholders will own 71.5% of the merged company, which will be valued at US$1.04 billion and have a 35.5% share of China’s online video advertising market, while Tudou shareholders will own the remaining 28.5%. Tudou will retain its brand and separate website. Tudou’s shares more than doubled to US$38.3 in early afternoon trading on Monday, while Youku’s shares jumped 26.7% to US$31.69. The deal comes as both companies struggle with the hefty costs of acquiring content and providing bandwidth. Youku reported a US$7.8 million net loss in the fourth quarter, compared to Tudou’s US$23.5 million loss. Analysts did not expect either company to become profitable until next year at the earliest, but the deal could speed profitability. Victor Koo, the CEO of Youku, said the companies expect to see “significant synergies” in areas such as licensed content and bandwidth management.