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58.com and Ganji Confirm Merger: Consolidation of Chinese Internet Companies Continues

Via TechNode : New York-listed Chinese classified service 58.com has agreed to acquire a 43.2 percent stake in its arch-rival Ganji.com by issuing around 34 million shares and with US$412.2 million in cash. This merger has terminated the decade-long battle between the two largest classified sites in China, creating an Internet conglomerate with a market cap of over US$10 billion.

Chinese Internet giant Tencent, which owns 25.3% stake of 58.com, will purchase US$400 million worth of newly issued shares in the company at a price of US$52 apiece.

The two companies will continue to operate independently, while two CEOs will run the joint company as co-CEOs.

According to third-party data, 58.com and Ganji accounts for 40.6% and 33.4% of market share respectively in the local lifestyle category in 2014, followed by Baixing, which represents a 16% share.

Over years of growth, the two companies have developed several overlapped businesses, such as real estate listing and recruitment, and their competitions are mainly focused on these areas. To keep up with the changing market, both companies tried to expand to O2O sector with the launch of 58daojia, an on-demand service for housekeeping, manicure and delivery, Ganji Haoche, a used car trading platform, among others.

Solid financial support is the prerequisite for the growth of both existing and new businesses. Since its establishment, Ganji has gobbled up nearly US$400 million in six rounds of financing with the latest US$200 million round received from Tiger Funds and Carlyle last August. On the other hand, 58.com raised nearly US$150 since 2005 in six rounds from like angel investor Cai Wensheng, SAIF Partners, Warburg Pincus, DCM, etc.

However, the battle between the well-funded rivals become tougher as the marketing costs soared while they spend lavishly to beat out the other. This kind of development can’t be sustainable. The merger will realize major cost, revenue, and strategic business synergies between the two companies, said 58.com CEO Yao Jinbo in a statement.

Merger or acquisition between the two largest players in a certain field isn’t specific to classified site industry in China. In 2012, Youku and Tudou, two largest video streaming sites in China, have merged together. Baidu-backed iQiyi merged peer-to-peer video service PPS in 2013. Chinese online English tutoring service 51Talk acquired rival 91Waijiao, and the most recent case is the merger between China’s two largest taxi-calling app Didi Cache and Kuaidi Dache this year.

Although these companies are from different fields, the logic behind their mergers are similar. After years of tough competition and money-burning, many verticals of Chinese Internet market appear ripe for consolidations as leading well-funded players emerged and smaller competitors died away. While neither of the survivors could beat out the other to win supremacy in the market, a win-win cooperation seems to be a better choice than an all-out fight.

But merger is only the first step of the long journey ahead, as 58.com and Ganji still have lots of overlapped businesses. For example, Tudou has suffered serious loss of users after merging with Youku due to the similar branding and contents of the two sites. Other emerging competitors like iQiyi and Souhu Video have attracted former Tudou users with their different positioning. Likewise, 58.com and Ganji’s merger also faces these problems of how to better integrate overlapped services and to handle the collision of enterprises cultures.

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