Case Study on Youku and Tudou’s Business Combination
Case Study on Youku and Tudou’s Business Combination
Frank CHANG, Leonard XU
Fang YANG, Sainan YU
Background：
In March 2012, Youku Inc. (NYSE:YOKU) ("Youku") and the Company announced that they had signed a definitive agreement for Tudou to combine with Youku in a 100% stock-for-stock transaction. After the merger, the new company Youku Tudou Inc will keep the Youku and Tudou brands, continuing to occupy the 1st and 2nd positions in the online video industry.
Youku and Tudou together will achieve synergy in numerous aspects, including video copyrights price, bandwidth servers cost, back-stage data consolidation, search, media library, and advertisement publishing. Both Youku and Tudou expect to benefit from the operating synergy and financial synergy. The faster they achieve synergies, the quicker they can break even.
Case abstract:
This case led us to discuss the impact of Youku and Tudou’s business combination on Tudou’s historical and future financial statements.
Case Questions:
What is the impact of the merger on Tudou’s historical financial statements?
As a result of the merger, Tudou’s financial figures had to be adjusted in accordance to Youku’s accounting policy. This involved reclassifying some accounts, revaluing items and removing certain items.
Income statement adjustment
In the profit-loss statement, there were several significant changes. Firstly, business tax was reclassified. It was taken out of net revenues and added to the cost of revenues. This had no net effect on profit.
Secondly, Youku’s policies identified heretofore unrecognized intangible assets. The amortization expense for this was added to cost of revenues, product development expenses and general and administrative expenses. This had a negative net effect on profit.
Thirdly, share-based compensation expense of assumed Tudou options had to be adjusted as Tudou’s shares would no longer exist. This had a net positive effect on profit. Fourthly, certain sales and
Frank CHANG, Leonard XU
Fang YANG, Sainan YU
Background：
In March 2012, Youku Inc. (NYSE:YOKU) ("Youku") and the Company announced that they had signed a definitive agreement for Tudou to combine with Youku in a 100% stock-for-stock transaction. After the merger, the new company Youku Tudou Inc will keep the Youku and Tudou brands, continuing to occupy the 1st and 2nd positions in the online video industry.
Youku and Tudou together will achieve synergy in numerous aspects, including video copyrights price, bandwidth servers cost, back-stage data consolidation, search, media library, and advertisement publishing. Both Youku and Tudou expect to benefit from the operating synergy and financial synergy. The faster they achieve synergies, the quicker they can break even.
Case abstract:
This case led us to discuss the impact of Youku and Tudou’s business combination on Tudou’s historical and future financial statements.
Case Questions:
What is the impact of the merger on Tudou’s historical financial statements?
As a result of the merger, Tudou’s financial figures had to be adjusted in accordance to Youku’s accounting policy. This involved reclassifying some accounts, revaluing items and removing certain items.
Income statement adjustment
In the profit-loss statement, there were several significant changes. Firstly, business tax was reclassified. It was taken out of net revenues and added to the cost of revenues. This had no net effect on profit.
Secondly, Youku’s policies identified heretofore unrecognized intangible assets. The amortization expense for this was added to cost of revenues, product development expenses and general and administrative expenses. This had a negative net effect on profit.
Thirdly, share-based compensation expense of assumed Tudou options had to be adjusted as Tudou’s shares would no longer exist. This had a net positive effect on profit. Fourthly, certain sales and