Internet leaders Baidu (Nasdaq: BIDU) and Alibaba are in a recent war to see who can win the most headlines for online M&A, which has suddenly accelerated in China after years of inactivity. In the last 24 hours alone, media are reporting that Alibaba has finalized a deal to team with Hunan Satellite Television to purchase PPTV, one of China's top video sharing sites. Not to be outdone, Baidu was reported earlier  this week to be in late-stage talks to buy group buying site Nuomi, and has just announced  the finalization of its previously announced $1.9 billion (HK$14.7 billion) plan to buy online app store 91Wireless.
In writing about the Nuomi rumors earlier this week, I commented that Alibaba's M&A strategy looks the most focused of China's top three web companies, aimed on the mobile Internet and services that can complement Alibaba's core e-commerce business. This latest rumor involving PPTV still looks consistent with that strategy, though I do sense that Alibaba and the others are having to look harder for suitable targets as deal activity heats up. As that happens, look for more deals to emerge that look less logical, setting the stage for some strange pairings that are likely to fail over the longer term.
All that said, let's have a look at the latest talk on PPTV, whose investors have been trying to sell some or all of the company since this spring. PPTV's investors are hardly alone in losing patience with their company, since few if any of China's online video sharing sites are earning any profits. Just last week, sector leader Youku Tudou (Nasdaq: YOKU) reported  a $17 (HK$131.8) net loss in this year's second quarter.
PPTV was reportedly in talks earlier this year to be purchased by Internet portal Sohu (Nasdaq: SOHU), which would have been logical since Sohu also operates a popular video sharing platform. But those talks broke down over pricing, and Alibaba has been one of several names to pop up repeatedly  since then as an interested suitor.
Now media are reporting  that Alibaba and Hunan Satellite TV have reached a deal to acquire PPTV for $400 million (HK$3.1 billion). PPTV executives are calling the reports "unreliable", though in this case I would be inclined to believe that a deal really has been reached. If the reports are true, the $400 million price tag would be far less than the $700 million (HK$5.4 billion) valuation PPTV got in 2011 when it took in its latest investment of $250 million (HK$1.9 billion) from Japan's Softbank. Still, the valuation isn't bad in the current climate where investors have lost patience with loss-making Chinese Internet firms.
This deal, if true, looks like a so-so fit for Alibaba, since many of PPTV's users are probably in roughly the same demographic as customers who shop on Alibaba's popular e-commerce platforms. But the online video business certainly isn't very close to e-commerce itself, which is why I'm calling this pairing only so-so. I do like the addition of Hunan Satellite to the combination, as the central China broadcaster has a strong reputation as a leading developer of popular TV programs. Accordingly, PPTV could become a strong new outlet for Hunan Satellite's programs, especially as more and more Chinese consumers watch their TV over the Internet.
This latest deal would be the third major M&A for Alibaba this year, following its purchases of stakes in Sina's (Nasdaq: SINA) popular Weibo microblogging platform and in online mapping services firm AutoNavi (Nasdaq: AMAP). I would expect to see an official announcement on this latest deal either this week or next, which should be followed by a string of more similar acquisitions through the rest of the year by Alibaba, Baidu and possibly social networking leader Tencent (0700,HK ).
Bottom line: Rumors of an Alibaba deal to buy video sharing site PPTV are most likely true, though such a tie-up will provide only limited synergies.
To read more commentaries from Doug Young, visit youngchinabiz.com