Jack Ma

Alibaba chairman's spending spree fuels guessing game

PUBLISHED : Saturday, 07 June, 2014, 1:13am
UPDATED : Saturday, 07 June, 2014, 1:38am

Now this is a spending spree. E-commerce titan Alibaba Group's founder and chairman Jack Ma Yun has spent about 40 billion yuan (HK$50.2 billion) in mergers and acquisitions so far this year, either through Alibaba Group or through other entities controlled by him.

Yesterday, private equity firms Yunfeng Capital, co-founded by Ma, and Citic Private Equity Funds Management announced they would invest at least two billion yuan for a 60 per cent stake in a unit of Inner Mongolia Yili Industrial Group, a dairy products company.

Just one day earlier, Ma added a new item to his long 2014 acquisition list: football. It seems the English teacher-turned-entrepreneur wants to build his company into an empire before its potentially record-breaking initial public offering in New York, rumoured to take place in the third quarter of the year.

The move into sport surprised people, as there seems little in common between dairy farming, football and e-commerce.

"I'm confused by the acquisitions Jack has made this year," said Liu Xingliang, chairman of Hongmai Software, a Beijing-based internet data analysis company.

"I feel it is no longer the Alibaba and Jack that I know."

"To be honest, Alibaba's acquisitions are kind of messy.

"I cannot see the investment logic behind them."

Before forking out 1.2 billion yuan for half of the shares of Guangzhou Evergrande Football Club - the country's most prominent football club managed by Marcello Lippi - the Alibaba supremo invested 3.3 billion yuan for a 20.6 per cent stake in financial software provider Hundsun Technologies, and 6.54 billion yuan for a 20 per cent stake in Wasu Media.

The investment list since January included a HK$6.24 billion deal for a majority stake in ChinaVision Media, an investment of US$692 million in Intime Retail, one of the mainland's largest operators of department stores, and US$215 million for a stake in United States-based messaging service Tango.

Zhang Hongping, managing director of Alibaba Capital, earlier said that Alibaba's acquisitions could be divided mainly into two kinds: there are the firms that match with Alibaba's business and there are those that can help Alibaba in building an ecosystem and platform.

Liu said he believes the driving force behind the hyperactive mergers and acquisitions is Alibaba's multibillion-dollar IPO on Wall Street, slated to happen as early as August 8. "Otherwise it can't be so frantic," he said.

"Alibaba wants to tell the market that it is a comprehensive enterprise, not simply an e-commerce firm."

E-commerce firms are not highly appreciated by investors in the US, reflected by their low price-earnings ratios, according to Liu.

"So, besides e-commerce, Alibaba also packs other concepts into its IPO, for example culture and entertainment."

Liu said it was hard to tell if the acquisitions would support Alibaba's daily business.

"Even the usefulness of Intime Retail and ChinaVision Media to Alibaba is indirect, let alone football," he said.

"But, as long as the purchases created some buzz in the market, it is a good deal."

Investors will continue to closely look at everything that happens in the firm, and the attention is important before the offering, Liu said.

Keso Hong Bo, founder of mainland technology website DoNews and a seasoned observer of the internet industry, said he failed to discern a coherent strategy behind the purchases made by Ma.

"What I can say is so many purchases in a flurry are very extraordinary," Hong said.

He said Ma was trying to strike the deals before the share sale because to do so afterwards would be difficult and time-consuming.

"Especially for the deals like a football club, it is only personal interest as far as I can see and has nothing to do with the core business of Alibaba," Hong said. "Shareholders may vote against such acquisitions."

By comparison, the investment strategy of Alibaba's rival, Hong Kong-listed mainland internet giant Tencent, is much clearer, according to industry experts.

Shenzhen-based Tencent is either investing in upstream industries including content producers and game designers or in businesses where it is relatively weak, for example e-commerce site

Guotai Junan International analyst Ricky Lai said buying the football team would boost the awareness of Alibaba as a brand and increase the firm's valuation.

"Not every asset is a tangible asset," he said. "The investment in a brand should be valued in a different way with investment in operational business."

Alibaba can leverage football to raise interest in its brand, and this is a good time, according to Lai. "The upcoming World Cup will add fuel to the fire," he said

Alibaba can make different sectors of its business reachable to users through mobile payment application Alipay Wallet, the leader in online payments in the country, just as Tencent put games and finance services on its dominant instant messaging app WeChat, Lai said.

The analysts said they would not be surprised if Alibaba announces other acquisitions before its listing.

"Ma's buying momentum is just unstoppable, looking from the current circumstances," Liu said.

"I think nothing is impossible for him to buy if he can buy a football team."