Alibaba Group Holding Ltd offered to pay $3.5 billion to become the sole owner of Youku Tudou Inc, known as China's YouTube, in a move that would give the e-commerce giant access to more than half a billion online video users.
The offer, a vote of confidence in China's economy from Alibaba Chairman Jack Ma, makes Youku Tudou the latest in a string of U.S.-listed Chinese companies being taken private by big shareholders.
"Alibaba needs traffic. Online or mobile video is the number one place for that," said Tian Hou, an analyst at TH Capital in New York.
Alibaba first bought into Youku Tudou in mid-2014, acquiring a stake of about 18 percent as part of a push into online video.
Alibaba's offer for Youku Tudou values the 82 percent of the company it does not own at $4.6 billion.
But it will end up paying $3.5 billion, taking into account the $1.1 billion of cash on Youku Tudou's books, Alibaba's chief financial officer, Maggie Wu, said on a call on Friday.
Youku Tudou said the all-cash offer already had the support of its chairman and chief executive, Victor Koo.
Koo, a Bain & Co alumnus who holds an MBA from Stanford University, owns about 18 percent of Youku Tudou, according to a securities filing.
THREAT TO NETFLIX?
Though Youku has never turned a profit, its more than 500 million monthly users provide an enormous platform for Alibaba's ambitions to sell online film and television and poses a potential threat to Netflix Inc's plans for China.
Alibaba's move comes as Netflix is looking to expand aggressively overseas as opportunities to grow become scarcer in its home market. Youku Tudou's subscription service already offers Hollywood and Chinese-made movies.
"For Netflix, I think people already thought that China was going to be a challenge," Atlantic Equities analyst James Cordwell said. "This just serves as a helpful reminder."
Alibaba's offer comes at a 30 percent premium to Youku Tudou's closing price on Thursday, valuing the company at about $5.2 billion, based on 194.47 million shares outstanding as of June 30.
"Digital products, especially video, are just as important as physical goods in e-commerce," Alibaba Chief Executive Daniel Zhang said. "Youku's high-quality video content will be a core component of Alibaba's digital product offering in the future."
Youku Tudou is one of about 30 U.S.-listed Chinese companies to have received an offer to go private this year, according to Hong Kong research firm MCM Partners, many in the belief that higher valuations are available back home.
In the biggest proposed deal, a consortium offered to buy security software maker Qihoo 360 Technology Co Ltd for about $10 billion in June.
Youku Tudou's New York-listed stock was up 22 percent at $24.95, below the offer price of $26.60 per American Depositary Share.
Alibaba, shares of which were up 0.2 percent at $71.91, said it would fund the offer with cash on hand.
Reuters
Sun Oct 18 2015
Guards stand near an entrance to Alibaba's headquarters in Hangzhou, Zhejiang province, China, May 18, 2015. REUTERS/John Ruwitch/Files
Who is Prabowo Subianto, incoming president of Indonesia?
A wealthy ex-general with ties to Indonesia's popular outgoing president and its dictatorial past, looks set to be its next leader.
Iran's supreme leader says Hamas leader's death will not halt 'Axis of Resistance'
The "Axis of Resistance", built up with years of Iranian support, includes Hamas, the Lebanese Hezbollah group, the Houthi movement in Yemen, and various Shi'ite groups in Iraq and Syria.
Putin says Russia willing to seek compromises between Iran and Israel
Russia is ready to help seek compromises between arch-foes Israel and Iran, President Vladimir Putin said on Friday, saying these would be difficult but possible.
What proposals will Russia push at the BRICS summit?
The proposal is also to establish a BRICS reinsurance company to allow uninterrupted shipment of goods and key commodities between members.
Indonesia's free meals plan in the spotlight as Prabowo readies for office
Prabowo calls the programme one of the main drivers of economic growth, eventually set to add an estimated 2.5 million jobs.
Astro AWANI's revamped English news website, AWANI International, launches on Oct 21
Astro AWANI's revamped English platform delivers in-depth global news and expert analysis to keep you informed on key developments.
Israeli strikes kill 33 people in Jabalia refugee camp in Gaza, medics say
Residents of Jabalia said Israeli tanks had reached the heart of the camp after pushing through suburbs and residential districts.
Liam Payne's ex-partner calls for media restraint after 'painful' death
Cheryl Tweedy used her statement to urge the media to remember they had a seven-year-old son, Bear, who could read the reports.
Analysts: Indonesia's strong MoF leadership team to boost investor confidence
Sri Mulyani Indrawati as head of Indonesia's Ministry of Finance is expected to instil confidence among investors.
Biden offers both a carrot and a stick to Israel as his term nears an end
Israel has frequently resisted US advice and has caused political difficulties for the Biden administration.
Putin says BRICS will generate most of global economic growth
Russian President Vladimir Putin will host a summit of the group in the city of Kazan on Oct. 22-24.
ISIS Malaysia's perspective of Budget 2025
An excellent rakyat-centric budget under the overarching principle of a caring and humane economy.
Budget 2025: Record increase in STR, SARA aid initiatives
The government will provide a significant boost to the Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) initiatives next year.
Budget 2025: EPF contributions to be made mandatory for foreign workers – PM Anwar
The government plans to make it compulsory for all non-citizen workers to contribute to the Employees Provident Fund (EPF).
What policies to expect from Indonesia's new President Prabowo
Prabowo will be open to foreign investment, his aide has said, such as by offering investors management of airports and sea ports.
Budget 2025: Govt allocates RM470 mil to empower women's participation in PMKS
The Women's Leadership Apprenticeship Program will be intensified as an effort to produce more female corporate personalities.
Israel sends more troops into north Gaza, deepens raid
Residents of Jabalia in northern Gaza said Israeli tanks had reached the heart of the camp, using heavy air and ground fire.
Indonesia ramps up security ahead of Prabowo's inauguration
Prabowo Subianto will be sworn in as Indonesia's president on Sunday with Vice President-elect, Gibran Rakabuming Raka, also taking office.
Immediate allocation of RM150 mil for local authorities, DID to tackle flash floods
Datuk Seri Anwar Ibrahim said this allocation is intended to address the recent flash floods that hit the capital and several major towns.
Budget 2025: Sabah, Sarawak to continue receiving among highest allocations - PM
Sabah and Sarawak continues to be prioritised under Budget 2025, with allocations of RM6.7 billion and RM5.9 billion respectively.