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Asia300

Alibaba bets billions on China's top food delivery app

Deal puts $9.5bn value on company controlling half of domestic market

Ele.me controls more than half of China's $30 billion takeout delivery market.   © Reuters

DALIAN, China -- Alibaba Group Holding will convert China's largest online meal delivery company into a full subsidiary, the e-commerce operator said Monday, acquiring the remaining shares for around $5 billion.

Alibaba already owns 43% of Ele.me, whose name plays on a Chinese phrase for "hungry yet?" The deal would value the startup, officially known as Shanghai Lazhasi Information Technology, at $9.5 billion.

Once the transaction closes, Alibaba will appoint Ele.me founder and CEO Zhang Xuhao as the unit's chairman, then seat an Alibaba executive as the new CEO.

China's takeout delivery market has grown quickly with the spread of smartphone payments. The market expanded by 23% in 2017 to 204.6 billion yuan ($32.5 billion), Chinese research firm AskCI Consulting said.

Ele.me, a trailblazer in the app-based takeout business, provides a platform for making orders and arranging deliveries. The company last year bought out a Beijing rival, Baidu Waimai, lifting the group's share in the domestic meal delivery market to slightly over 50%.

But with a heavy emphasis on investing to expand operations, Ele.me has apparently failed to generate profits. It will restructure underneath Alibaba's umbrella.

A virtual duopoly controls China's food delivery industry. The other big player, Meituan Waimai, is linked to Chinese tech giant Tencent Holdings. Compatriot Alibaba competes with Tencent in smartphone payments, and both groups are investing in startups to integrate a richer portfolio of services into their mobile payment platforms. The full acquisition of Ele.me will capture more smartphone payment users for Alibaba.

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