Alibaba makes cash offer for remainder of Youku Tudou

PUBLISHED : Saturday, 17 October, 2015, 2:12am
UPDATED : Saturday, 17 October, 2015, 2:31am

E-commerce titan Alibaba Group Holding has proposed to buy all the outstanding shares that it does not own in Youku Tudou, China's leading online video-services provider, for US$4.6 billion in a proposed cash transaction of US$26.60 a share.

That valued the entire Youku Tudou business at US$4.2 billion, based on the company's outstanding shares as of December 31.

"We believe that the proposed transaction, with tighter integration of our resources, will help Youku achieve exciting growth in the years ahead by leveraging Alibaba's assets in living-room entertainment, e-commerce, advertising and data analytics," Alibaba chief executive Daniel Zhang Yong said in a statement on Friday.

New York-listed Alibaba, the world's largest e-commerce-services provider, and Yunfeng Capital, a private equity firm co-founded by Alibaba executive chairman Jack Ma Yun, teamed up in May last year to acquire a combined 18.5 per cent stake in Youku for US$1.2 billion. Alibaba's current shareholding is 18.3 per cent.

See also: Shares rise in New York

According to Alibaba, Youku would form one of the "key pillars" of its digital entertainment strategy.

"Digital products, especially video, are just as important as physical goods in e-commerce," Zhang said.

In June, Alibaba announced a new service called TBO - for Tmall Box Office - in China that is patterned after the United States' HBO and Netflix.

Alibaba did not address at that time how TBO would impact its ties with Youku. The proposed acquisition of Youku would appear to strengthen Alibaba's online video-services business.

TBO competes against the likes of Baidu-owned iQiyi, internet giant Tencent Holdings' eponymous Tencent Video, and Leshi Internet Information & Technology in China's rapidly-growing online video market.

A key differentiating factor for TBO is that about 90 per cent of its content will be paid for on a subscription basis or per view, compared with domestic rivals that mainly offer free content.

Chinese internet-industry analyst iResearch has forecast the country's online video market to post total revenue of 90 billion yuan by 2018, up from 24 billion yuan last year.

Victor Koo Wing-cheung would continue as Youku Tudou's chairman and chief executive under Alibaba's proposal.

Hangzhou-based Alibaba said its proposed acquisition had the support of New York-traded Youku's founding shareholders, including Koo, Chengwei Capital and their affiliates.

"A closer partnership with Youku will give us the opportunity to support Victor and his leadership team to fulfil the dream of building the leading digital-entertainment platform in China," Ma said on Friday.

The proposed buyout is subject to satisfactory completion of due diligence by Alibaba and the negotiation of a mutually acceptable definitive merger agreement, according to Alibaba.

Youku, which is headquartered in Beijing, posted a wider net loss of 220.7 million yuan in the second quarter, compared with a 76.9 million loss a year ago.