By Susan Ning, Zheng Ziqing and Wu Han

On March 12, two Chinese Internet video giants Youku and Tudou announced that the two companies have signed a final agreement on March 11 to combine their services in a 100% stock-for-stock transaction to create a new service provider, Youku Tudou Inc, allowing Tudou to exit the stock market.

After the combination, Youku’s shareholders and holders of its American Depository Receipts (ADRs) will have 71.5% of equity of the new company, with Tudou’s shareholders and its ADR holders entitled to 28.5% of the combined equity. Youku’s ADRs, under the symbol of "YOKU", will continue to be listed on the New York Stock Exchange.

According to the unaudited financial results of 2011 announced by Tudou and Youku, Tudou and Youku have achieved annual net income of RMB 511.2 million yuan and RMB 897.6 million yuan last year respectively. The combined turnover does not reach the application thresholds for concentration of undertakings prescribed in Article 2 of the State Council’s Provisions on Thresholds for Prior Notification of Concentrations of Undertakings

Although under Article 4 of the Provisions, the Ministry of Commerce (MOFCOM) is entitled to launch investigation where a concentration of undertakings does not reach the filing thresholds, facts and evidence need to be collected in order to establish that the transaction results, or is likely to result in elimination or restriction of competition. As far as we know, MOFCOM has, under various occasions, said that it is going to promulgate a new rule on investigation of concentration of operators below the filing thresholds.