Youku Inc. slid the most in more than a month, leading declines in Chinese companies traded in the U.S., on speculation the nation’s largest video sharing website may be paying too much for Tudou Holdings Ltd.
Youku, which announced plans on March 12 to acquire smaller competitor Tudou in a stock swap, tumbled the most since Jan. 31 and was the biggest decliner on the Bloomberg China-US 55 Index of Chinese U.S.-listed shares. The gauge dropped 2.3 percent to 104.25 yesterday in New York. China Life Insurance Co. traded at a discount to its Hong Kong stock for the first time in six days after reporting that premium income dropped in the first two months of this year from a year ago.
Youku’s 15 percent advance since the merger announcement has boosted the cost of the takeover by 27 percent to $1.18 billion, according to data compiled by Bloomberg. Holders of Tudou’s American depositary receipts will receive 1.595 ADRs of Youku for each Tudou ADR they own, the two companies said in a joint statement on March 12.
“Investors are selling because they are recognizing that Youku is paying a hefty premium that may not be justified today given Tudou’s fundamentals,” said Kevin Pollack, a fund manager at Paragon Capital LP in New York, which invests in U.S.-listed Chinese stocks. “After the big run-up of both stocks, especially Tudou, some profit taking is to be expected.”
The price move means Beijing-based Youku is paying the most expensive announced takeover premium among pending deals, with its own rise over the past three days giving arbitragers a chance to make a 15 percent profit, the most for comparable stock transactions on a global basis, data compiled by Bloomberg show.
‘Excellent and Cool’
Youku, meaning “excellent and cool” in Chinese, fell 8.3 percent to $28.79 in New York yesterday, extending its two-day slide to 9.6 percent. Shanghai-based Tudou, which had lost about half its value through March 9 after going public in the U.S. in August, has jumped 159 percent this week. The company, whose name means potato in Chinese, retreated 6.1 percent to $39.90 yesterday, snapping a five-day increase.
Some investors “are fearful that advertising revenues may not meet expectations if China experiences lower growth,” Pollack said.
“Tudou has not been a Tier-1 player in terms of fighting for the hottest content,” C. Ming Zhao, an analyst at Susquehanna International Group LLP, said in a March 12 report.
China, the world’s second-largest economy, expanded 8.9 percent in the last three months of 2011, the slowest pace in 10 quarters.
Chinese Premier Wen Jiabao said yesterday that home prices remain far from a reasonable level and relaxing curbs would lead to “chaos,” at a press conference in Beijing after the annual meeting of the National People’s Congress. On March 5, Wen cut this year’s economic growth target to 7.5 percent from 8 percent in the previous seven years.
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., dropped 3.2 percent to $38.67, the biggest one-day loss in a week. The Standard & Poor’s 500 Index was little changed at 1,394.28.
ADRs of of Sky-Mobi Ltd., a Chinese provider of mobile-phone applications, fell 1.8 percent to $3.88 after gaining 8.2 percent over the previous four days in New York.
Sales will be unchanged in the fiscal year ending March 31, 2013 as the market for lower-end feature phones shrinks, Chief Financial Officer Carl Yeung said in an interview at Bloomberg’s headquarters in New York yesterday.
China has sold about 300 million mobile devices in the past 12 months, of which more than 90 percent were feature phones, Yeung said. The situation will change this year as sales of smartphones, which have computer-like capabilities for running software and accessing websites, may rise to about 30 percent of the mobile-phone market, he said.
Sky-Mobi will benefit from increasing sales of smartphones starting from September this year, Yeung said. Contributions from smartphone applications to revenue will become “significant” in 2013, he said.
Sales for the quarter ended Dec. 31 rose 3.8 percent from the same period a year ago to 167.3 million yuan ($26.6 million), Sky-mobi, based in Hangzhou in China’s eastern Zhejiang province, said in a Feb. 15 statement. Net income dropped 96.6 percent from a year ago to 6.4 million yuan.
The Shanghai Composite Index dropped 2.6 percent, the most since Nov. 30, to 2,391.23 yesterday, while the Hang Seng China Enterprises Index for Chinese companies traded in Hong Kong declined 0.5 percent to 11,300.41.
ADRs of China Life, the nation’s largest insurer, fell 2.7 percent to $40.55 in New York. The depositary receipts, each representing 15 common shares, traded 1 percent below China Life’s Hong Kong stock, the first discount in six days. China Life climbed 0.2 percent in Hong Kong yesterday to HK$21.20, the equivalent of $2.73 per share.
Beijing-based China Life received 79.4 billion yuan ($12.5 billion) of premium income in January and February, according to a statement to the Hong Kong stock exchange yesterday. That compared with 84.6 billion yuan for the same period of 2011.