A logo of Alibaba Group at its headquarters in Hangzhou, Zhejiang province. The online shopping company yesterday raised its offer for Youku Tudou to $27.60 in cash from $26.60 last month.
Bloomberg
Beijing
Alibaba Group Holding agreed to buy video service Youku Tudou in a deal said to be valued at $4.8bn in total, as billionaire Jack Ma seeks to stream more content to Chinese Internet users through control of the YouTube-like site.
Net of Youku’s cash, the price is about $3.7bn, said a person familiar with the transaction who asked not to be identified because the details aren’t public.
Alibaba, China’s biggest online shopping company, raised its offer to $27.60 in cash from $26.60 last month. The new price is 35% above Youku’s stock price the day before the initial bid was disclosed. Youku’s board has approved the merger agreement, Alibaba, which already owned a minority stake in the company, said on Friday in a statement.
Full ownership of Youku will help Ma deliver US films and drama series to more than a third of China’s population as Alibaba competes with Baidu Inc and Tencent Holdings for the attentions of Internet users. The deal comes after he toured Hollywood to meet with studio executives, took control of a Chinese movie studio and invested in the latest “Mission: Impossible” film.
“The move into digital media makes a lot of sense,” said Rob Sanderson, an analyst at MKM Partners in Stamford, Connecticut, who recommends buying Alibaba’s shares. “The rise of Internet video is really undeniable around the world, so I think it’s a strategy that could produce quite a bit of leverage given the size of their communities.” Youku and Tencent’s video sites both had about 286mn unique visitors in August, yet viewers spent more time watching content on Youku, according to data compiled by Bloomberg.
Baidu’s IQiyi had 273mn visitors.
More than 461mn people in China consumed video online as of June, with 354mn users accessing from mobile phones, according to the China Internet Network Information Center. That’s larger than the entire population of the US. Alibaba’s shares fell 2.1% to $83.61 at the close in New York, reversing earlier gains after CNBC reported that Kynikos Associates LP founder Jim Chanos said investors should be bearish on the stock and recommended it as a short-sale trade. Youku jumped 7.3% to $26.14.
Victor Koo will remain as chairman and chief executive officer of Youku. The company, which has never posted a profit since its 2010 initial public offering, is zeroing in on US studios for programming. The company, which mostly streams professionally produced content rather than amateur videos, plans to collaborate with US entertainment producers to create content for its website, Koo said in an October 2014 interview.
Alibaba has averaged more than two purchases a month in 2015, announcing more than $13bn of transactions, according to data compiled by Bloomberg.
Youku fits into Alibaba’s so-called multiscreen strategy – making sure that users stay engaged in every screen, being their smartphones or desktops, said Gil Luria, an analyst at Wedbush Securities Inc in Los Angeles.
“Youku is the YouTube of China and has a lot of customer engagement,” said Luria, who rates Alibaba a neutral. “They’ll buy more content. They’ll buy more content-delivery platforms.” Morgan Stanley is Alibaba’s financial adviser, while Simpson Thacher & Bartlett is providing legal assistance.
