With their eyes on cutting costs and reducing competition,  Youku Inc, the owner of China’s most popular on-line video site, is moving to buy Tudou Holdings Ltd. for about $1 billion.

Tudou is one of Youku’s smaller competitors; when the merger is achieved the two internet companies together will have an easier time competing with China’s most popular online sites such as Baidu Inc and Tencent Holdings. Investors in the Chinese market are studying the deal carefully and watching how it will affect the overall economy and the specific high-tech/technology market.

The two companies issued a joint statement explaining what the deal could mean for holders of shares, or ADRs. (ADRs are American depositary receipts, which act like shares of stock in America but really represent shares in an off-shore company, in this case in China.) Within days of announcing the proposed takeover the ADR value of Tudou increased by 159 percent. In other words, for each ADR of Tudou owned, Youku will replace with 1.595 ADRs of Youku stock.

It is now up to shareholders of both Youku and Tudou to approve the deal, which is expected, but not until the third quarter of 2012. When the deal has been transacted Youku shareholders will own almost three-quarters of the new, larger company, which will take on the new nomen of Youku Tudou Inc.