Chinese e-commerce giant Alibaba Group BABA has entered into a definitive agreement to acquire Chinese Internet TV platform Youku Tudou Inc. YOKU, also known as China's YouTube, in an all-cash transaction.
Youku Tudou is a Chinese multi-screen entertainment and media company, which offers an Internet television platform, allowing users to search, watch and share high-quality video content across several devices.
Alibaba will pay $27.60 for each Youku American Depositary Share (ADS, each representing 18 ordinary shares of Youku Tudou) in cash, which represents 35.1% premium over the ADS' closing price on Oct 15, a day before Youku announced that it had received a "going private" proposal from Alibaba. Therefore, the transaction is valued at around $3.7 billion and is expected to close in the first quarter of 2016.
The current amount is higher than $26.60 per ADS offered by Alibaba in October. Alibaba owned 18.3% of Youku Tudou as of Oct. 16, when the initial offer was made.
In return, Alibaba will gain access to about 570 million online video users, helping the company to deliver American films and drama series to the Chinese audience, thereby ramping its push into the Chinese digital media market. It will thereby increase its user base in China where it competes against Baidu Inc. BIDU and Tencent Holdings Ltd.
The popularity of Internet video is on the rise around the world and especially in China. As per the China Internet Network Information Center, over 461 million people in China consumed video online as of June. Of this 354 million users accessed the same from mobile phones. The figure is greater than the entire U.S. population.
Therefore, the acquisition offers Alibaba an opportunity to build its media capabilities, particularly on mobile devices. Also, customer overlap between the two is unlikely to be 100%, so the acquisition should add to Alibaba’s 367 million annual active buyers and help it sell its ecommerce offerings to an even larger user base.
Alibaba is a Zacks Rank #3 (Hold) stock. A better-ranked stock in the space is Amazon.com Inc. AMZN, holding a Zacks Rank #2 (Buy).
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