October 16, 2015 10:50 pm JST
Alibaba acquisition

Offer values 'China's YouTube' at $5.2bn

JENNIFER LO, Nikkei staff writer

HONG KONG -- China's Alibaba Group has offered to buy all the shares it does not own in the Chinese video streaming company Youku Tudou, in an attempt to further diversify beyond its e-commerce business.

     The e-commerce giant owns 18.3% of Youku Tudou, which is quoted on the New York Stock Exchange and is widely regarded as a Chinese version of YouTube.

     Alibaba, also listed on the NYSE, is offering $26.6 per American Depositary Share, an all-cash offer which it said is a premium of 30.2% to Youku Tudou's closing price of $20.43 on Thursday. As of Oct. 15, Youku Tudou had a market capitalization of $3.99 billion.

     According to Maggie Wu, chief financial officer of Alibaba, the company is expecting to pay about $4.6 billion for the outstanding 81.7% of Youkou Tudou, valuing the company at $5.2 billion. Taking into account $1.1 billion net cash owned by Youku Tudou as of June 30, the net cash to be paid would be about $3.5 billion.

     During a conference call on Friday, Alibaba's executive vice-chairman Joseph Tsai said that the deal could lead to synergies in data sharing and a better understanding of users' viewing and shopping patterns, which would help Alibaba to improve its products and services.

     "We would like to have a closer integration of our data," Tsai said, adding that without full ownership of Youku Tudou cooperation would be partial and data sharing would not be complete.

     Alibaba is known for its e-commerce platforms, including the Taobao marketplace and T-Mall, a site for branded goods. In recent years, however, the group has sought to diversity its business through acquisition and investment.

     It owns a stake in the microblogging site Sina Weibo and produces film content through its subsidiary Alibaba Pictures. Last year, the group spent $1.2 billion for an initial stake in Youku Tudou and acquired a 20% share in Chinese electronics retailer Suning.

     Full ownership of Youku Tudou will allow Alibaba to deliver its own films and drama shows to a wider audience as it competes with technology companies including China's Baidu and Tencent Holdings for online viewers in China.

     Youku Tudou is one of the two largest online video companies in China, claiming more than 500 million monthly unique users across screens.

     Alibaba is also hoping the deal will boost the group's digital advertising revenues as traditional advertising spending shifts increasingly from TV to online and mobile platforms. Tsai said that online digital revenue in China is expected to reach $14 billion by 2018, from $4 billion in 2014.

     "Digital products, especially video, are just as important as physical goods in e-commerce," said Daniel Zhang, chief executive of Alibaba Group, in a statement. "Youku's high-quality video content will be a core component of Alibaba's digital product offering in the future."

     Alibaba said the proposed acquisition has the support of Youkou's founder Victor Koo Wing-cheung, who will remain the company's chairman and chief executive officer if the deal goes through.

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