With Tudou evermore anxious to press ahead with its IPO, come what may, the circumstances are ripe for speculation and rumours. Some will likely be far fetched, some probably even ludicrous, but there’s one that I find quite intriguing; that Tudou won’t ever make it to an IPO, but will instead be snatched up by Baidu.
As with any rumour caution is adviced, it could be wild speculation, someone might want to sell papers, or the information might have been planted by one of the players with ulterior motives. But I find the idea of this M&A move quite intriguing so I’ll take a few minutes to discuss whether or not I think it would make sense.
As I spent my previous post stating that the Tudou IPO is most likely due to circumstances forcing the hand of management, it might seem strange to entertain the idea of a Baidu bid taking it off the market. But there are some pretty interesting synergies and circumstances that could push developments in this direction.
Let’s start by looking at this from Baidu’s perspective. Could Tudou offer value to the company?
There’s little doubt that the online Video market in China has huge potential, Baidu have in fact got their own venture in the market, Qiyi, which has been seeing quite good growth numbers in the past. So the opportunity is there and Baidu definitely want to be a part of it. Thus, getting hold of the second largest player in the market would, of course, be worthwhile.
The existence on Qiyi would also allow Baidu to swiftly integrate the two services to create one larger platform to rival market-leader Youku. Adding a strong brand name to the current Baidu strategy of pushing Qiyi through it’s search results should add credibility to the offering as well.
Further, If the rumours about Youku being a default app in CMMC iPhone are true the company is setting up to take advantage of Tudou’s fall to shore up its position as number 1. If Baidu wants to make a move now could be the time.
Looking at Tudou, I believe the company is desperate to make something happen quickly, and their latest SEC filing would suggest that they need a serious cash-infusion, preferably yesterday. Add to this the fact that even though the word last week was that the company would IPO “any day now”, or even “within 2 days”, the earliest likely IPO date right now is 20/8.
The markets are crashing everywhere, Chinese companies have been particularly undervalued due to dodgy accounting, more and more people are realising VIE-structures carry real risks (especially when ex-wives still hold claims to them)… This is not looking good, and the way the company is haemorrhaging money it’s losing value at a rapid rate. Day by day a Baidu buyout will look more and more appealing.
I think Baidu could add good leadership and management practices to Tudou, as well as some political and business clout to make things happen for the company. However, I maintain that Tudou is not worth what the company is currently asking, so Baidu would likely play the waiting game and look to snatch up market share on the cheap as Tudou get more and more desperate.
I now cede the floor to further speculation by others.