In a report published Tuesday, analysts at Credit Suisse upgraded 58.com Inc (ADR) WUBA from Neutral to Outperform. The price target was raised from $41 to $90. The company announced on April 17 its intention to acquire a 43.2 percent stake in China-based Ganji.
58.com intends to acquire the leading local online marketplace in China for cash worth $412.2 million and 17 million new ADS issues. "This investment opens up further integration opportunities: full merger, deeper cooperation, co-branding, or an innovative corporate structure," the analysts said.
Since both companies are leaders in local advertising, together they will account for 90 percent share of the online classifieds market in China. This, the analysts believe, would offer the company leverage to expand into new services and verticals.
"The new co-CEO structure stabilizes both the teams, and could give management more room to maneuver the business in the near term… They will jointly realize major cost, revenue and strategic synergies. Both the companies would operate under their respective brands, sites and teams," the analysts added.
With this merger, the analysts expect the competition to increase among the leading players, especially in the real estate sector. However, ad revenue for Baidu, Inc. BIDU is unlikely to be affected meaningfully.
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