The shares of 58.com are surging due to the report that it entered a merger agreement with Ganji.com. The Chinese online marketplaces are expected to announce their agreement on Wednesday, according to Financial Times based on information from people familiar with the situation.

58.com Inc Surges On Merger Agreement

The stock price of 58.com increased more than 28% to $65.52 per share at the time of this writing around 1:55 in the afternoon in New York.

Merger will create a huge online classified company in China

A merger between 58.com and Ganji.com will create one of the largest, specialized online classified companies in China. The valuation of the combined company will probably reach around $10 billion, according to one of the people familiar with the transaction.

58.com is two times bigger than Ganji.com, and a deal between the companies will likely involve two stages due to antitrust concerns. Both companies offer various inline advertising listings similar to Craigslist such as jobs, housing, and second-hand goods.

One of the objectives of 58.com and Ganji.com in combining their businesses is to reduce their marketing costs significantly. One investor estimated that each company spends $250 million a year in marketing.

The decision of 58.com and Ganji.com came after investors raised concerns that Chinese technology companies are burning too much cash in their efforts to attract customers. Western investors of Chinese internet companies are starting to pressure the managements to focus more on shareholder value.

A leading investor commented, “People are fighting over the market. There is so much money thrown at these companies that they are virtually paying people to use their services. The money is not being used effectively.” He added that many of the companies in China were making decisions based on the” ego of their founders, not on economics even if they only have small stakes.”

58.com founder Jinbao Yao and Ganji.com founder Haoyong Yang will serve as co-CEOs of the combined company.

58.com acquired minority stake in To8to

Last month, 58.com acquired a minority stake in To8t0, a major online interior decoration platform in China. Its stake in To8to was worth approximately $34 million.

Jinbao noted that interior design is a rapidly growing business in China. He said To8to was an ideal partner for 58.com while exploring new ways to expand its online-to-offline business model.