(Nov 6): Alibaba Group Holding Ltd agreed to buy Youku Tudou Inc — popularly known as "China's YouTube" — for about US$3.7 billion, slightly more than it had offered in October.
The deal announced on Friday will give the e-commerce giant access to more than half a billion online video users, accelerating its push into the Chinese digital media market.
It is also a vote of confidence in China's economy by Alibaba Chairman Jack Ma, who has said investors should not overreact to his country's slowing growth. Youku Tudou's American Depositary Shares rose 10% to US$26.80 in premarket trading on Friday, below Alibaba's offer of US$27.60 per ADS. Alibaba held 18.3% of Youku Tudou as of Oct 16, when it made its initial offer of US$26.60 per ADS. The new offer values the rest of Youku Tudou at about US$4.8 billion. The new offer represents a premium of 35.1% over Youku Tudou's closing price on Oct 15.
Any deal would include the US$1.1 billion of cash held by Youku Tudou, Alibaba's chief financial officer, Maggie Wu, said in October. Based on this, Alibaba will end up paying about US$3.7 billion under its revised offer.
Unprofitable Youku Todou needed the partnership with Alibaba, Summit Research analyst Henry Guo said. Youku Tudou Chief Executive Victor Koo, a Bain & Co alumnus who owns about 18% of Youku Tudou, will remain CEO of Youku Tudou after the deal closes in the first quarter of 2016.
"With Alibaba's support, Youku Tudou's future as the leading multi-screen entertainment and media platform in China has been firmly secured," Koo said in a statement. Formerly bitter rivals, Youku — which means "what's best and what's cool" in Chinese — merged with Tudou ("potato") in a deal worth over US$1 billion in 2012. Alibaba has made a number of sizeable investments in digital media in China in the past couple of years.
In March 2014, it agreed to buy a controlling stake in ChinaVision Media Group Ltd for US$804 million to get access to TV and movie content. The company is now known as Alibaba Pictures.
A month later, Alibaba said it would pay about US$1 billion for a 20% stake in Wasu Media Holding Co Ltd.
In March 2015, TV program producer Beijing Enlight Media Co Ltd said Alibaba had invested US$383 million.Morgan Stanley Asia Ltd advised Alibaba, while J.P. Morgan Securities (Asia Pacific) Ltd advised Youku Tudou's special committee.
-Reuters November 6, 2015
