New York-listed 58.com Inc., often described as China's
Craigslist, has agreed to purchase a $1.6 billion stake in unlisted
rival Ganji.com using a combination of cash and shares.
58.com said it would pay for the 43.2% stake in Ganji.com by
issuing around 34 million shares and with $412.2 million in cash.
Based on 58.com's closing share price Thursday, the deal values
Ganji.com at just more than $3.6 billion.
As part of the deal, Chinese Internet giant Tencent Holdings
Ltd., which owns more than 25% of 58.com, will make an additional
investment of $400 million in the company to limit the dilution of
its current holding from the new shares being issued. Those shares
will be purchased at a price of $52 each. 58.com, which had an
initial public offering in October 2013, has a market
capitalization of nearly $6 billion.
The deal, the terms of which were reported earlier by The Wall
Street Journal, is the latest step toward a consolidation of
Chinese Internet properties.
"We are pleased to make this large-scale strategic investment in
Ganji.com to jointly realize major cost, revenue, and strategic
business synergies," 58.com Chairman Michael Yao said in a
statement. The two companies will continue to operate their
respective brands.
Investors and startup founders are seeing the benefits of
consolidation. China's two largest taxi-hailing apps, Didi Dache
and Kuaidi Dache, agreed to a $6 billion merger in February and saw
their combined value rise by nearly 50% to $8.75 billion in less
than two months as new investors clamored to buy shares. Investors
who put money in the latest rounds raised by the two competing
firms before their merger saw quick gains, including Singapore
state investment firm Temasek Holdings Pte. Ltd. and Japan's
SoftBank Corp.
Many startup founders have been reluctant to pursue mergers with
rivals after years of bitter competition. Still, many niche markets
within China's mobile Internet appear ripe for consolidation as the
number of competitors dwindle, often leaving a pair of well-funded
rivals remaining. Those rivals are often able and willing to spend
cash to try to beat out their competitor, driving up marketing
costs. For example, 58.com spent $180.1 million last year on sales
and marketing, more than double the $84.5 million spent in 2013 as
the battle with Ganji.com escalated.
Tencent is the biggest backer of 58.com. It initially purchased
a stake in 58.com in June 2014 and has since increased its holding
through open market purchases of additional shares. Big investors
in Ganji.com include Tiger Global Management LLC and Carlyle Group
LP.
Write to Rick Carew at rick.carew@wsj.com
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