Alibaba Buys Youku in Deal Said to Be Valued at $4.8 Billion

(Closes shares in eighth paragraph.)

(Bloomberg) -- Alibaba Group Holding Ltd. agreed to buy video service Youku Tudou Inc. in a deal said to be valued at $4.8 billion in total, as billionaire Jack Ma seeks to stream more content to Chinese Internet users through control of the YouTube-like site.

Net of Youku’s cash, the price is about $3.7 billion, said a person familiar with the transaction who asked not to be identified because the details aren’t public.

Alibaba, China’s biggest online shopping company, raised its offer to $27.60 in cash from $26.60 last month. The new price is 35 percent above Youku’s stock price the day before the initial bid was disclosed. Youku’s board has approved the merger agreement, Alibaba, which already owned a minority stake in the company, said Friday in a statement.

Full ownership of Youku will help Ma deliver U.S. films and drama series to more than a third of China’s population as Alibaba competes with Baidu Inc. and Tencent Holdings Ltd. for the attentions of Internet users. The deal comes after he toured Hollywood to meet with studio executives, took control of a Chinese movie studio and invested in the latest “Mission: Impossible” film.

“The move into digital media makes a lot of sense,” said Rob Sanderson, an analyst at MKM Partners in Stamford, Connecticut, who recommends buying Alibaba’s shares. “The rise of Internet video is really undeniable around the world, so I think it’s a strategy that could produce quite a bit of leverage given the size of their communities.”

Youku and Tencent’s video sites both had about 286 million unique visitors in August, yet viewers spent more time watching content on Youku, according to data compiled by Bloomberg. Baidu’s IQiyi had 273 million visitors.

More than 461 million people in China consumed video online as of June, with 354 million users accessing from mobile phones, according to the China Internet Network Information Center. That’s larger than the entire population of the U.S.

Alibaba’s shares fell 2.1 percent to $83.61 at the close in New York, reversing earlier gains after CNBC reported that Kynikos Associates LP founder Jim Chanos said investors should be bearish on the stock and recommended it as a short-sale trade. Youku jumped 7.3 percent to $26.14.

‘YouTube of China’

Victor Koo will remain as chairman and chief executive officer of Youku. The company, which has never posted a profit since its 2010 initial public offering, is zeroing in on U.S. studios for programming. The company, which mostly streams professionally produced content rather than amateur videos, plans to collaborate with U.S. entertainment producers to create content for its website, Koo said in an October 2014 interview.

Alibaba has averaged more than two purchases a month in 2015, announcing more than $13 billion of transactions, according to data compiled by Bloomberg.

Youku fits into Alibaba’s so-called multiscreen strategy -- making sure that users stay engaged in every screen, being their smartphones or desktops, said Gil Luria, an analyst at Wedbush Securities Inc. in Los Angeles.

“Youku is the YouTube of China and has a lot of customer engagement,” said Luria, who rates Alibaba a neutral. “They’ll buy more content. They’ll buy more content-delivery platforms.”

Morgan Stanley is Alibaba’s financial adviser, while Simpson Thacher & Bartlett is providing legal assistance.

--With assistance from Edwin Chan and Jonathan Browning in Hong Kong, Rodrigo Orihuela in Madrid and Amy Thomson in London.

To contact the reporters on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net; Lily Katz in New York at lkatz31@bloomberg.net To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net Cecile Daurat, Lisa Wolfson