Details Emerge on Youku-Tudou Merger
Last week, SEC filings from Youku finally shed some light on how exactly the Youku-Tudou merger went down. You can read the filings for yourself here if you’d like — background on the merger starts on page 97 — and while it’s heavy on mundane details, it actually makes for somewhat interesting reading.
Youku and Tudou, it seems, had been involved in occasional conversations about possible mergers or cooperations since 2009. However, none of these discussions went very far, and both companies were also actively considering working with other competitors in the online video space. The real talks, interestingly enough, began not with anyone from Tudou or Youku, but with VCs. Eric X. Li of Chengwei Capital (an early investor in Youku) approached Jixun Foo of GCV Capital (an early investor in Tudou).
The two agreed to meet in February, and on the 16th, Foo met with Li as well as Youku founder/CEO Victor Koo and CFO Liu Dele. Apparently Tudou CEO Gary Wang wasn’t informed about the discussions until after this meeting.
As discussions went on, Tudou also considered making Youku’s offer public in an attempt to start a bidding war with other competitors. It was decided, however, that this was too risky as it might cause Youku to rescind its initial offer of acquisition — apparently, Tudou was quite keen not to lose that opportunity.
討議が進められるにつれ、Tudouは、他競合会社間のオファー競争を展開させるべく、Youkuのオファーを公にしたいとも考えるようになった。だがそれは、Youkuに対する最初の買収契約オファーを台無しにする可能性も秘めており、大変リスクが高い動きだとYoukuは判断した。そしてTudouはもちろん、そのチャンスを逃すまいと強く感じていた。
議論が進むにつれ、Tudou側はYouku側の提案を公表して他の競合との入札合戦にしてみようということも考えた。しかしながら、それはYouku側に当初の買収提案を取り下げさせることになりかねずリスクが高すぎるという判断になった。見るところ、Tudouはきわめて乗り気でこの機会を逃したくなかったものらしい。
Tudou and Youku were obviously in direct contact with each other as discussions continued, but VCs Li and Foo continued to play significant roles, discussing and coming to agreements on a number of important things on behalf of the companies:
[Li and Foo discussed and agreed upon] the amount of the termination fee, the method of calculating the merger exchange ratio, the authority of Tudou’s representative on the transition management committee, the length and scope of non-competition agreement for Mr. Wang and the scope of the restriction on Youku relating to discussions or solicitations of competing proposals.
The filing also shares the official reasons for accepting the merger from each company’s board (beginning on page 103). Youku’s reasons are more or less what you would expect — the merger gives Youku control of Tudou, after all — but some of Tudou’s reasons for acceptance belie that the company was struggling to increase the value of its shares, and concerned about its inability to do so on its own. They also reveal that Tudou management was still wondering whether it could have gotten a higher price had there been an open sale and bids from other competitors, but obviously, it decided not to risk Youku’s offer being withdrawn by pursuing that.
The rest, as they say, is history, but if you’re still hungry for more details, the full filing has around 400 pages of em. Go nuts!
Disclosure: I briefly worked for Youku, however, I have no stock or other interests in the company.
