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Chinese e-commerce group Alibaba Group and a private equity firm are to take an 18.5 per cent stake in Chinese online video firm Youku Tudou for approximately $1.22 billion to strengthen Alibaba Group’s stable of digital content offerings.
Alibaba Group and Yunfeng Capital, a private equity fund co-founded by Alibaba Group’s Executive Chairman Jack Ma, will make the purchase through a joint investment vehicle.
Youku Tudou, one of China’s most popular online video websites, streams a variety of programmes ranging from weepy Korean dramas to blockbuster American movies to hundreds of millions of Chinese viewers every month. The company’s American Depository Shares (ADS) are listed and traded on the New York Stock Exchange.
The deal calls for the joint investment vehicle to invest approximately $1.22 billion to purchase an estimated 707,250,870 newly issued Class A shares from Youku Tudou. Another 13,869,990 Class A shares will be purchased from an unnamed Youku Tudou shareholder at a price of $30.50 per ADS, with each ADS representing 18 Class A ordinary shares of the company. Youku Tudou shares closed April 25 at $24.14.
After the deal closes, Alibaba Group and Yunfeng Capital will own approximately 16.5 per cent and 2 per cent respectively of outstanding Youku Tudou shares and Alibaba Group’s Chief Executive Officer, Jonathan Lu, will join Youku Tudou’s board.
Victor Koo, chief executive officer of Youku Tudou, said that having Alibaba as a strategic investor would help the video company continue to build an immersive cultural entertainment ecosystem that integrates online and offline entertainment.
Alibaba Group’s Executive Chairman Jack Ma said the investment would further extend the Alibaba ecosystem and bring new products and services to Alibaba’s customers.
Ma said the deal would “accelerate” Alibaba’s digital entertainment strategy. Alibaba Group in March 2014 invested $804 million into Chinese TV, film and video game producer ChinaVision Media Group to raise Alibaba’s stake and that of related parties in the transaction to more than 70 per cent.
In April, Ma and partners bought a 20 per cent stake in Chinese cable television firm Wasu Media Holding for $1.05 billion. In addition, officials for Wasu and Alipay, an Alibaba-related e-payments company, said this week they are cooperating to develop a fast payment service for Wasu’s Internet TV content.
As young people in China move away from their television set to watch movies and shows over the Internet and their mobile devices, advertising dollars are also moving in that direction. According to iResearch data, China’s online video market sales rose 42 per cent to RMB 12.8 billion ($2 billion) in 2013.