NEW YORK (TheStreet) -- The shares of Youku Tudou (YOKU) and a number of other Chinese Internet stocks are rallying after Alibaba (BABA) announced that it had made a takeover bid for the Chinese video streaming service provider.
WHAT'S NEW: Alibaba announced that it had offered to take Youku Tudou, which operates a video streaming service in China, private for $26.60 per American Depositary Share, or ADS, in cash. The bid is contingent on successful completion of due diligence, Alibaba stated, adding that it had previously disclosed that it owns about 18% of Youku's shares. Youku responded by saying that it had received the proposal, but did not commit to accepting the bid.
WHAT'S NOTABLE: In June, responding to reports that Alibaba would look to launch a video streaming service in China, Young's China Business Blog predicted that the e-commerce giant would look to buy Youku. The Fly published a summary of the blog's article at that time. Following the reports about Alibaba entering the video streaming market, research firm Needham in June said that it had not included any revenue from China in its estimates for streaming video leader Netflix (NFLX) and predicted that Alibaba's launch of a video streaming service in China would not negatively impact Netflix's performance in other markets.
ANALYST REACTION: Summit Research analyst Henry Guo said Alibaba's proposed acquisition of Youku Tudou, which he notes has almost 600M monthly users, should significantly help the e-commerce giant further penetrate into China Internet users and strengthen its digital media ecosystem. Meanwhile, Youku Tudou would likely remain aggressive on investments if backed by Alibaba's financial resources, Guo said. The analyst views the potential deal as a negative for other players in the market, including Baidu's (BIDU) iQiyi, Tencent Video (TCEHY) and Sohu Video (SOHU) .
PRICE ACTION: In early trading, Youku's stock surged 22.5% to $25, while the shares of Chinese microblog Weibo (WB) jumped 13% to $15.50 and those of Chinese online video operator Ku6 Media (KUTV) also jumped 12%, to 74c. Another Chinese Internet company, SINA (SINA) , surged 7.5% to $47. Meanwhile, Baidu rose about 1% and Sohu.com was fractionally higher.