Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: After a nearly 30% pop on Tuesday following reports of a potential merger, shares of Chinese online classified ad specialist 58.com Inc (ADR) (WUBA) pulled back as much as 9.7% early Wednesday.
So what: According to the Financial Times yesterday, sources familiar with the situation said 58.com and competitor Ganji.com not only signed a memorandum of understanding one month ago, but also were expected to announce a merger on Wednesday. Today's drop, then, seems to be a reflection of the fact that a merger has not been confirmed.
Now what: Of course, the day isn't over yet. And keep in mind that as of this writing, shares of 58.com stand around 16% higher than they started the week. While nothing is guaranteed, this indicates the market is holding out hope that the deal -- which could result in significant cost and competitive synergies -- might still happen.
But I also feel the need to reiterate that such a merger would almost certainly be subject to antitrust concerns, so investors should expect speed bumps along the way if a merger is in the works. Again, that's why I wouldn't blame 58.com investors for taking at least some of their chips off the table given this week's impressive gains.
