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S H I W E I Z H A N G
A P R I L 6 , 2 0 1 2
Youku Tudou Merger Arbitrage
Thesis: Buy 200 Shares of TUDO, Short 319 Shares of YOKU
Background: March 11, 2012, Youku and Tudou entered into an Agreement and Plan of Merger, or the Merger Agreement, for Tudou to combine with us in a 100% stock-for-stock transaction.
Each of Tudou’s ADSs will be cancelled in exchange for the right to receive 1.595 of Youku ADSs
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
Tudou/Youku
Stock-swap
Currently 13.2% Arbitrage Spread
March 23 data:
Annual interest rate to short Yoku ADS:8.10%
Availability: 104,100 Shares
Deal Closure: By the end of Q3 (9/31/2012)
The merger has been approved by both companies’ boards of directors
Risks
April 10th Youku SEC Filing: Need over 2/3 of Tudou’s shareholders’ affirmative vote
Wage raise
No firing of any kind
Keep brand and operations independent
Employees own options
Need over 50% of Youku’s shareholders’ approval
Penetration rate increased 8% since announcement of merger
Increased bargaining power with content producer and advertisers, etc.
Investigation from authorities in China
Merger does not trigger explicit threshhold
But, the authorities have discretion.
National security – N/A
