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Groupon China Venture to Merge With Tencent-Backed FTuan

Groupon Inc., the biggest daily coupon website, is combining its Gaopeng online-commerce venture in China with FTuan, a company backed by local partner Tencent Holdings Ltd.

Gaopeng, in which Chicago-based Groupon owns a minority stake, will continue to offer its own brand alongside FTuan after the merger, according to a statement from Groupon and Tencent yesterday. The transaction with FTuan, which provides consumers low-priced deals for dining and purchases, is part of Groupon’s strategy to “strengthen” its investment in China, Groupon said. Terms weren’t disclosed.

Groupon is deepening its partnership with Tencent, China’s biggest Internet company, as they compete against hundreds of similar group buying sites offering discount deals for online shoppers. Alibaba Group Holding Ltd. Chairman Jack Ma’s Yunfeng Capital is also among investors in Gaopeng, which had struggled to adapt to the Chinese market since starting last year, according to Alex Wang at research company iResearch.

“Gaopeng was a newcomer to the Chinese market,” Wang, a Beijing-based analyst, said by phone. “Gaopeng and FTuan will benefit from savings in product sourcing and operations.”

Tencent rose 3.2 percent to HK$225.60 in Hong Kong trading today, the biggest contributor by index points to the 1 percent climb in the city’s benchmark Hang Seng Index. Groupon gained 3.6 percent to $10.25 in New York yesterday, the third-best performing stock in the Nasdaq Internet Index.

FTuan Views

FTuan, based in Beijing, had an average of 566,000 daily page views last month, making it the ninth most-popular group-buying site in China, according to iResearch. Gaopeng ranked 10th with 486,000 views, according to the researcher.

“It takes time to cultivate the market in China,” said George Zhang, who represents Gaopeng at the Bite Communications public relations agency in Beijing. “It’s too early” to assess the performance of Gaopeng’s business, said Zhang, who couldn’t immediately provide user numbers.

China’s group-buying industry is “consolidating” as the number of operators declined to fewer than 1,000, from more than 3,000 last year, iResearch’s Wang said. is the industry leader with almost 4 million average daily page views, Wang said.

Groupon faced setbacks in China last year, when it fired workers for poor performance, a person with knowledge of the matter said at the time. Former and current employees of Gaopeng said the joint venture closed more than 10 offices in the country, and a lawyer representing former Gaopeng employees estimated that about 400 people were fired, according to the Wall Street Journal.

Industry Sales

China’s online group-buying market generated estimated revenue of 4.3 billion yuan ($676 million) last year, more than doubling from 1.5 billion yuan in 2010, according to iResearch.

FTuan attracted about $30 million of investment from Tencent in March 2011. It raised a further $60 million in September 2011 from several investors including Tencent, according to FTuan.

Tencent said last month it plans to invest $1 billion in e-commerce operations.

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