After Youtu marries Ali, can another big tree grow under the big tree?

There is always something big happening on Fridays. This Friday, Alibaba Group announced a non-binding offer to the board of directors of Youku Tudou, Inc., to acquire all remaining outstanding shares of the company excluding the shares of Youku Tudou already held by Alibaba Group in cash at a price of US$26.60 per ADS (American Depositary Receipt). The total amount is expected to exceed US$4.5 billion.

Gu Yongqiang also sent an internal letter immediately, saying that the offer was supported by Youku Tudou's founding shareholders. This means that after the rumors with Tencent and iQiyi, Youku Tudou finally "committed" to Alibaba and went on the road of privatization.

Influenced by the merger news, Youku Tudou (YOKU) stock price surged 21.93% to close at $24.91 on Friday. However, is this really the best way out for the acquired company?

"Girls are not allowed to stay"

Youku Tudou was pleased with Alibaba's offer. This may be explained by the current survival status of video websites.

Due to their single profit model, video websites have always been astonishing in the industry for their ability to burn money. As of the first half of this year, almost all domestic video websites have been unable to escape losses. Youku Tudou's financial report shows that it suffered a net loss of RMB 342 million in the second quarter of this year, an increase of about 140% year-on-year. Some media pointed out that from the time Youku went public to June last year, Youku's total losses reached RMB 1.7 billion.

In addition, the copyright fees that have increased nearly 20 times since 2008 have also brought greater pressure to video websites. Youku Tudou's core model is still the cost-saving UGC model, but in a market where everyone is spending money to buy copyrights, indifference is likely to have a negative impact. Youku Tudou cannot avoid the route of huge copyright investment and self-made content. From the perspective of short-term interests, finding a wealthy "godfather" for yourself will surely make you more confident when spending money.

On the other hand, mobile traffic is contributing more and more to video websites, but Youku Tudou has not taken the lead in this field. In July this year, the mobile usage rate of online video users reached 71.9%, exceeding PC for the first time. Various data from iResearch also show that Youku Tudou's former "number one" position is no longer stable.

Judging from the current situation, Gu Yongqiang still lacks sufficient confidence in the independent operation of the Youku Tudou Group.

Getting married is risky

From an independent "big girl" to a "young wife" living under someone else's roof, Youku Tudou not only needs to adapt to the change of its own role while accepting Alibaba as its "in-laws", but more importantly, it needs to grasp the operational risks brought about by this "marriage".

Simply put, the risks here mainly come from the following two aspects:

1. Corporate control

In its acquisition offer, Alibaba Group proposed that Youku founder Victor Koo will continue to serve as chairman of the board and CEO of Youku Tudou Group.

Gu Yongqiang's internal letter did not mention whether the company would continue to operate independently after the merger was completed. Sources revealed that the company's board of directors will be composed of Alibaba, management, and one of Youtu's original major shareholders, Chengwei Capital.

The two-year lock-up period for Gu Yongqiang given in the merger proposal does not represent the stability of Youku Tudou in the next two years. Referring to previous mergers and acquisitions, it is not uncommon for the founders of the acquired companies to only retain nominal positions and quickly fade out of actual management.

Previously, Youku Tudou had experienced a reshuffle of its middle and senior management. To a certain extent, the departure of the management team has already weakened Gu Yongqiang's control over the company. This has also triggered speculation from the outside world as to whether the CEO will gradually cash out and step down.

2. Corporate structural integrity

In addition to Youku, Tudou, Cloud Entertainment, and Innovative Marketing, Youku Tudou also has Heyi Pictures, which focuses on movies, and Heyi Culture, which focuses on the TV drama industry.

Alibaba owns Alibaba Pictures, Digital Entertainment Group, and a possible streaming business similar to Netflix for paying users in the future.

Alibaba must have its own plans for taking action against Youku Tudou at this time. Alibaba Group CEO Zhang Yong said: "Youku Tudou's high-quality video content will become a core component of Alibaba's future e-commerce digital products. At the same time, the combination of Youku Tudou with Alibaba's marketing, digital entertainment and other businesses will also produce more chemical reactions."

It is clear that it is inevitable that Youku Tudou will be absorbed by Alibaba's various business lines after the re-splitting. Alibaba itself lacks a layout in the field of Internet video. Will Alibaba be more inclined to build Youku Tudou into its own media output port after acquiring Youku Tudou? If so, it will be difficult for Youku Tudou to stick to its independent development strategy.

The best "way out"?

The purchase price of $26.60 per ADS (American Depositary Receipt) by Alibaba is 30.2% higher than the closing price of Youku on the last trading day before the transaction and 44.5% higher than the volume-weighted average price of Youku on the New York Stock Exchange in the last three months. Alibaba Group plans to use existing cash to pay for the transaction.

On the surface, Gu Yongqiang, who successfully cashed out, became the biggest winner of this transaction. This also seems to convey the following message: being acquired by BAT with huge investment may be the best way out for video websites at present. Is this really the case?

As a major competitor of Youku Tudou, people naturally turn their attention to iQiyi. Tencent Video is Tencent's biological son, and there is no such thing as it being acquired. And will iQiyi, which is backed by Baidu, also be unable to escape the fate of being "married off"?

iQiyi officially issued a statement regarding Alibaba's privatization offer to Youku Tudou, saying that it would not make any comment on the matter. It also said that it "is confident in the prospects of the video industry and will continue to adhere to iQiyi's unique independent development strategy to embrace the imaginative future of China's online video."

At the initial stage, it is difficult to conclude whether being acquired is the best way out, but from this point of view, it is at least not the only way out.

It is not the first time that an e-commerce company has acquired a video website in China. Two years ago, Suning spent $250 million to become the largest shareholder of PPTV. Judging from the development of the acquired company, people can't help but have some concerns about this largest merger and acquisition transaction in the technology industry: Can Youku Tudou beat the rules of the capital game?

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.