China’s biggest classifieds sites Ganji and Tencent-backed 58.com to merge (UPDATED)

China’s two biggest online classifieds companies have agreed to merge, according to the Financial Times. Ganji and 58.com have both signed a memorandum of understanding and are expected to officially announce the merger as early as today.

Update on 4/17/2015 @17:00: QQ Tech reports 58.com will buy 43 percent of Ganji for about US$1.2 billion. That’s 34 million common shares and US$412.2 million in cash. They will remain separate entities, and the two CEOs will become co-CEOs of the company.

Another source quoted in a Reuters report says there are "huge uncertainties" and it is unclear whether the deal will go through.

58.com, often referred to as "China’s Craigslist," listed on the New York Stock Exchange in October 2013. It acquired real estate marketplace Anjuke for US$267 million last month. Tencent, which just surpassed a US$200 billion market cap for the first time this week, bought a 20 percent stake in 58.com last September.

Ganji is one of China’s most valuable startups, with a market cap estimated to exceed US$1 billion. It raised its sixth round of funding in August 2014, worth US$200 million. Ganji founder Mark Yang last month announced plans to file for an initial public offering (IPO).

The Financial Times reports the combined value of the companies could reach US$10 billion, according to an unnamed source close to the matter. 58 is roughly twice the size of Ganji in terms of valuation.

The deal, once announced, will still have to be approved by regulators. Because the two websites dominate China’s online classifieds market, antitrust concerns could arise.

Merging the two companies means they could both spend substantially less on marketing, which has been necessary for one to compete with the other. An investor told the Financial Times each company spends about US$250 million per year on marketing.

According to 58’s latest earnings report, the company has over 200 million monthly active users. 66 percent of page views come from mobile devices. The company beat revenue estimates and made US$80.2 million. US$3.2 million of that was profit. 58 has 1.26 million merchants with paid subscriptions.

After news of the potential deal surfaced, 58’s stock price jumped 34 percent.

(Source: Financial Times)