This document discusses a proposed merger arbitrage opportunity involving Youku Tudou Corporation. The author recommends buying 200 shares of Tudou and shorting 319 shares of Youku based on the stock swap ratio in the merger agreement. Currently there is a 13.2% arbitrage spread between the stock prices. Key risks include needing over 2/3 approval from Tudou shareholders and 50% approval from Youku shareholders. The merger also may face regulatory scrutiny in China but does not explicitly cross ownership thresholds.

1. Youku Tudou Merger Arbitrage
SHIWEI ZHANG
APRIL 6, 2012

2. Thesis: Buy 200 Shares of TUDO, Short 319
Shares of YOKU
 Background: March 11, 2012, Youku and Tudou
entered into an Agreement and Plan of Merger, or
the Merger Agreement, for Tudou to combine with us
in a 100% stock-for-stock transaction.
 Each of Tudou’s ADSs will be cancelled in exchange
for the right to receive 1.595 of Youku ADSs

6. 1.8
1.6
1.4
1.2
1
0.8
Tudou/Youku
Stock-swap
0.6
0.4
0.2
0

7. Currently 13.2% Arbitrage Spread
 March 23 data:
Annual interest rate to short Yoku ADS:8.10%
Availability: 104,100 Shares
 Deal Closure: By the end of Q3 (9/31/2012)
 The merger has been approved by both companies’
boards of directors

8. Risks
 April 10th Youku SEC Filing:
 Need over 2/3 of Tudou’s shareholders’ affirmative vote
Wage raise
 No firing of any kind
 Keep brand and operations independent
 Employees own options


Need over 50% of Youku’s shareholders’ approval
Penetration rate increased 8% since announcement of merger
 Increased bargaining power with content producer and
advertisers, etc.


Investigation from authorities in China
Merger does not trigger explicit threshhold
 But, the authorities have discretion.
 National security – N/A


9.  Questions?
 Contact:
 Shiwei Zhang – Shiwei.Zhang47@gmail.com