Merger between Tudou and Youku flags thawing of an icy relationship

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Youku and Tudou, two leading online video companies in China, announced that the two sides concluded a merger agreement on 11 March. The merger between the two front-runners will be accomplished through a 100% stock-for-stock transaction.

story_6_picture“We intend to lead the next phase of online video development in China,” said Victor Koo, the chairman and chief executive officer of Youku. The two companies, however, have been fierce rivals until recently.

In December 2011, Tudou accused Youku of illegally uploading onto the latter’s website videos of TV programmes exclusive to Tudou, and claimed damages of RMB150 million (US$24 million) from Youku.

In the same month, Youku filed a lawsuit claiming that Tudou had been likewise uploading TV dramas, entertainment programmes and original videos exclusive to Youku. In January this year, Youku also sued Tudou for unfair competition.

However, Chinese websites have been reporting that as of the end of March, Shanghai Pudong New Area People’s Court had received four applications from Youku, stating that the company wants to “drop all lawsuits against Tudou”. The court has reportedly decided to approve those applications.

“We expect to see significant synergies across a number of areas including leveraging licensed content over a larger user base and realising efficiencies in bandwidth management and other common expenses,” Koo said.

After completion of the merger, the new company will take the name “Youku Tudou Inc”, with Youku shareholders and American Depositary Receipts (ADR) holders possessing 71.5% of its shares and those of Tudou possessing 28.5%.

The merger has been approved by both companies’ board of directors, but it is still subject to the approval of their shareholders. The merger is expected to be completed in the third quarter of this year.

Skadden Arps Slate Meagher & Flom, TransAsia Lawyers and Conyers Dill & Pearman acted as legal advisers to Youku in this transaction, while Kirkland & Ellis, Fangda Partners and Maples and Calder acted as legal advisers to Tudou.