China's top two video websites announced plans Monday to merge. Youku Inc. owner of China?s most- popular online video site, plans to acquire competitor Tudou Holdings Ltd. (TUDO) in a $1 billion stock deal that will help lower costs for licensing and transmitting content.

Youku Chief Executive Officer Victor Koo said, "We expect to see significant synergies across a number of areas including leveraging licensed content over a larger user base and realizing efficiencies in bandwidth management and other common expenses."

The proposed deal will strengthen the new company's ability to compete with Baidu and Tencent Holdings Ltd. in adding online video users in a nation where Google's YouTube is restricted.

The transaction requires the approval of Youku and Tudou shareholders and is expected to be completed in the third quarter, the companies said. On completion, Youku shareholders will own 71.5 percent of the combined company, to be named Youku Tudou Inc., the companies said.