By Rick Carew
New York-listed 58.com Inc., often described as China's
Craigslist, has agreed to purchase a large minority stake in
unlisted rival Ganji.com using a combination of cash and shares,
according to people familiar with the situation.
As part of the deal, Chinese Internet giant Tencent Holdings
Ltd., which owns more than 25% of 58.com, will make an additional
investment in the company to limit the dilution of its current
holding from the new shares being issued, the people said.
58.com, which had an initial public offering in October 2013,
has a market capitalization of nearly $6 billion.
The deal, expected to be announced later Friday before the start
of trading in New York, would be the latest step toward a
consolidation of Chinese Internet properties.
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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