Web portal giant to shell out $40m, combined services speculated

BEIJING - Sina Corp, China's biggest Internet portal, has entered into an agreement with Tudou Holdings Ltd to buy a 4 percent stake in the country's second-largest online video website, according to a source close to the matter.

Sina will pay $40 million for the stake, according to the source, who declined to be named because the negotiations are private. The move may lead to more cooperation between the companies, but details haven't yet been discussed, the source said.

The deal was reached prior to Tudou's listing on the Nasdaq exchange in New York on Aug 17.

A number of competitors - including the Web portal Sohu.com Inc and the Internet conglomerate Tencent Holdings Ltd - have approached Tudou with the intention of purchasing a stake and to discuss possible cooperation, "to fend off Youku.com Inc", the source said. However, no agreement was reached between Tudou and the suitors.

Ahead of Tudou's listing, the media speculated that the company had been approached by potential buyers, including some of China's biggest Internet names, such as the search engine Baidu Inc.

Naomi Lu, national head of Tudou's public relations department, declined to comment on the reports. Liu Qi, deputy general manager of Sina's marketing center, said he "hadn't heard anything about the deal".

Sina intends to compensate for its limited presence in the online video space when compared with rivals such as Tencent and Sohu, said analysts.

"Sina's move shows that it believes the deal could bring considerable returns because of the rising market and the undervaluation of Tudou," said Tang Yizhi, an analyst with the domestic research company Analysys International.

Tudou's shares fell 12 percent on the company's US market debut, declining to $25.56. They closed at $19.24 on Friday, 33.66 percent lower than the issue price.

Tang added that there is a possibility that Tudou's business may be combined with Sina's most popular service, Sina Weibo. However, a 4 percent stake would yield little influence in terms of Tudou's management.

Youku claimed 23.4 percent of the Chinese Internetmarket, in terms of revenue, in the last quarter, followed by Tudou's 14 percent and Sohu's 13 percent, according to Analysys International.

After years of development, the online-video market is becoming increasingly accepted by Chinese Internet users.

Approximately 301 million people had watched videos online in China by the end of June. That figure accounts for more than 60 percent of the country's total Internet population of 485 million over the same period, according to statistics from the China Internet Network Information Center.