More Trouble Signs in Youku, Tudou Union 优酷与土豆联姻问题重重

By newsdoug on July 3, 2012

New signs are emerging of trouble brewing in the pending marriage of China’s top 2 online video sites, with leading site Youku (NYSE: YOKU) announcing some new top executive changes that completely ignore top managers from its future partner Tudou (Nasdaq: TUDO). I previously predicted this kind of discord could quickly snowball after Youku and Tudou announced their unlikely marriage last year, due to very different leadership styles of their 2 heads, along with indications that neither leader was prepared to leave the merged company.

Investors showed equal concern after release of Youku’s latest announcement, bidding down both companies’ stock by nearly 7 percent in Monday trade. The news itself was relatively straightforward, with Youku saying its chief financial officer had been promoted to president of the company and its senior vice president of finance was named CFO. (company announcement; Chinese article)

What’s most striking about this announcement isn’t what was said, but rather that Youku would make such high level appointments when it is just weeks or at most a month or 2 away from closing its previously announced merger with Tudou. Based on the sharp drop of the companies’ stocks, investors are probably worried that the marriage may either be falling apart or at the very least is already showing signs of strain.

Those are the only natural conclusions I can reach based on the fact that Youku, the dominant partner in the marriage, seems to have completely ignored the people in Tudou with these new changes. In particular, many were probably expecting Tudou’s opinionated founder Gary Wang to get a top place in the new company, and this announcement seems to be a sign that Tudou chief Victor Koo has little or no intention of giving him such a position.

The unexpected marriage was greeted with fanfare when the 2 companies announced it earlier this year, with shares of both companies soaring on the news. In my view, this new announcement is the latest warning signal that this pending merger is running into problems as both Victor Koo and Gary Wang may be re-thinking their original decision and deciding that perhaps their companies might be better served by remaining independent.

Any similar announcements from Tudou in the weeks ahead naming top new managers would certainly add to the evidence that there are problems, leading me to stand by my previous assertion that this marriage is destined for a rocky period in its 1-2 years if it gets completed at all. The way things are going, I would only peg the chances for the deal to close at about 50 percent now, and they could easily fall below that level if more signs of tensions start to emerge.

Bottom line: A new announcement of top executive changes at Youku reflects strain in its pending marriage with Tudou, and the deal now stands only a 50 percent chance of completion.

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