Alibaba to pay about $ 3.7 b for ‘China’s YouTube’

Reuters: Alibaba Group Holding Ltd. agreed to buy Youku Tudou Inc – popularly known as ‘China’s YouTube’ – for about $ 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 $ 26.80 in premarket trading on Friday, below Alibaba’s offer of $ 27.60 per ADS.

Alibaba held 18.3% of Youku Tudou as of 16 October, when it made its initial offer of $ 26.60 per ADS. The new offer values the rest of Youku Tudou at about $ 4.8 billion.

The new offer represents a premium of 35.1% over Youku Tudou’s closing price on 15 October.

Any deal would include the $ 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 $ 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 $ 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 $ 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 $ 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 $383 million.

Morgan Stanley Asia Ltd advised Alibaba, while J.P. Morgan Securities (Asia Pacific) Ltd. advised Youku Tudou’s special committee.