In an effort to wade even deeper into the waters of digital content, Alibaba Group Holding (BABA) is offering to buy the portion of Youku Tudou (YOKU) it doesn’t already own – the remaining 82% of the company – at a price that implies Youku is worth $5.1 billion.
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Alibaba is paying a premium of about 30% to Youku Tudou’s Thursday closing price in New York.
Alibaba will pay the amount in cash for the 81.7% of the video website it doesn’t already own, Chief Financial Officer Maggie Wu said during a conference call on Friday.
Citigroup Inc. (NYSE:C) Net income rose to $4.29 billion, or $1.35 per share, in the third quarter from $2.84 billion, or 88 cents per share, a year earlier, when the bank had taken a near $2 billion charge for litigation and restructuring costs.
Alibaba said in the press release that the proposed transaction would combine the company’s unparalleled data-driven platforms in e-commerce, media and advertising with Youku Tudou’s market-leading digital franchise. 15, Youku Tudou had a market capitalization of $3.99 billion. It runs the Youku and Tudou sites, which combine user-generated content with licensed movies and TV series. Its most recent earnings report showed that quarterly revenues grew 28 percent year over year, to $3.4 billion, a number that seemed to dissatisfy Wall Street; Alibaba’s stock price has slid almost 19 percent over the past year.
Alibaba is making the proposal with the support of the founding shareholders of Youku, including Victor Koo, Chengwei Capital and their affiliates.
It’s true that Alibaba’s online shopping site TMall is created to sell physical goods, but current or would-be owners of BABA stock should know online video isn’t exactly uncharted waters for Alibaba CEO Jack Massachusetts. Barclays cut their price objective on Alibaba Group Holding from $97.00 to $90.00 and set an overweight rating for the company in a report on Thursday, August 13th. Further, Tsai said is it gaining valuable insight from Youku Tudou’s client viewing patterns, which Alibaba can use to advance its online marketing strategies. Alibaba has recently made deals with film and music groups as well as launched a video subscription service, TBO. Alibaba Group Holding Limited (BABA)’s weekly performance is 6.03% and compared to their 52 week low, they are up 27.12%.
The deal is less about financials – Youku Tudou has struggled to post profits despite impressive year-on-year revenue growth – and much more about eyeballs.
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Reuters noted that if Alibaba pushes through with this multi-billion deal, it will be purchasing all of the shares of Youku.
