Monday was a pretty uneventful day for the markets, but two China stocks made significant strides.
Chinese Online-video company Tudou Holdings (Nasdaq: TUDO) surged 157% to an all-time high of $39.48 a share after it was announced that rival Youku (NYSE: YOKU) was buying it out for $864 million. The merger creates the largest online-video company in all of China. The new company will be called Youku Tudou Inc.
Youku is currently the larger of the two China stocks, with a market cap of $3.6 billion. It too received a major boost from today’s deal. Shares of Youku popped 27.4% after the announcement.
At $39.48 a share, Tudou – a small-cap stock valued at just over $1 billion – shattered its 52-week high of $27.91 a share.
Neither Tudou nor Youku has ever been profitable. China’s online-video industry has long had a reputation for being a haven for pirated content. But the industry has purportedly cleaned up its act and is expected to compete for more licensed content, which could in turn result in increased ad revenue.
The new Youku Tudou collaboration will still have to prove that it can actually make money. As analyst Bill Bishop told The Wall Street Journal, the deal brings “two unprofitable companies together (to make) one unprofitable company.”
Still, given how docile the markets were today, the big moves made by these two under-the-radar China stocks were enough to make headlines. Whether Youku and Tudou can continue to make headlines will depend on whether the companies can improve their business models now that they’ve joined forces.