Morgan Stanley: 58.com and Ganji.com merger would provide multiple avenues of cost and revenue synergies

On Wednesday Morgan Stanley issued a report on 58.com Inc (ADR)

after reports that 58.com and Ganji.com agreed to merge. According to a Financial times article cited by the analysts the 2 companies signed an MOU in Beijing on March 14th. Currently Morgan Stanley rates 58.com as Underweight while a price target is currently unavailable. George Meng, Ben Lin, and Robert Lin, analysts at Morgan Stanley, wrote, "We believe potentially a large portion of their ad budget can be saved if a merger takes place...In addition there could be more cost savings from other expense items...each company has its own strength in certain verticals and regions. As a result a potential merger could also bring revenue synergies." The savings in advertising budget stems from the fact that Ganji.com is believed to be 58.com's closest competitor. There were reports after fourth quarter 2014 earnings that 58.com's management would triple its advertising budget to compete with Genji.com. Combined the companies will have an increase amount of leverage in the marketplace. Morgan Stanley believes that both companies's strengths can be complementary. The analysts specifically highlight Ganji's job and automotive verticals as key areas of success. However analysts warn investors that the deal may not go through due to Chinese antitrust regulations. To avoid any problems the Financial Times article says that the transaction, "will probably involve two stages." 58.com Inc. (ADR) previously closed at $67.87.