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October 17, 2015

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Alibaba to grow past e-commerce

ALIBABA Group has proposed spending US$4.5 billion to acquire the remaining shares in Chinese video website Yukou Tudou, signaling the e-commerce giant’s intent to expand beyond its core business of online shopping.

The proposed transaction is expected to further cement Alibaba’s market influence in e-commerce, media and advertising when combined with Youku Tudou’s digital video franchise.

“The proposed transaction will help Youku Tudou better leverage Alibaba’s assets in home entertainment, e-commerce, advertising and data analytics, and Youku’s high-quality video content will be a core component of Alibaba’s digital product offering in the future,” Alibaba Chief Executive Officer Daniel Zhang said in a statement yesterday.

Alibaba is paying US$26.60 per share for the all-cash transaction after it bought 16.5 percent of Youku Tudou in 2014. It now owns about 18.3 percent of Youku Tudou’s outstanding shares.

Youku Tudou said in a separate statement that it has formed a special committee with two independent directors to consider the transaction. But it didn’t say when the transaction will be completed.

Analysts said the deal could help Alibaba draw more traffic to its sites and offer a vehicle to integrate its media and entertainment assets.

“Alibaba needs more media resources to induce more traffic in the next quarter, and it also needs a strong leader to integrate the media assets under its name,” Guotai Junan Securities analyst Ray Zhao said. “But Alibaba still needs to integrate all the resources it has now to make it work.”

Youku founder Victor Koo will remain chairman and chief executive officer under the proposal.

Youku Tudou, iQiyi and Tencent’s video unit are the top-three video websites by advertising income at the end of the first quarter of this year, according to domestic consultancy Analysys International. Youku Tudou has a 21.2 percent share, followed by iQiyi’s 19.6 percent and Tencent’s 14 percent.

The proposal is still subject to the completion of due diligence by Alibaba and negotiations over a mutually acceptable definitive merger agreement.

The offer follows a series of moves by Alibaba to expand into the film industry through its film arm, Alibaba Pictures Group. Recent investments include a deal to collaborate with Paramount Pictures to promote “Mission: Impossible — Rogue Nation,” the latest in the spy thriller series starring Tom Cruise.


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