Alibaba Reaches Deal to Sell Meituan-Dianping Stake
January 28 2016 - 4:00AM
Dow Jones News
HONG KONG—Alibaba Group Holding Ltd. has reached a roughly $900
million deal to sell its stake in China's largest online provider
of movie ticketing, restaurant bookings and other on-demand
services, as the Internet giant builds its own competing platform,
according to people familiar with the situation.
Alibaba agreed to sell its stake in Meituan-Dianping, created
last year by the merger of two rival startups, to a group of
investors, the people familiar with the matter said. Some of the
investors who bought the stake also participated in Meituan's
recent $3.3 billion fundraising round, according to the people.
Alibaba decided to sell its stake in the startup as a result of
the Meituan-Dianping merger that brought in rival Chinese Internet
company Tencent Holdings Ltd. as a shareholder. Alibaba had already
signaled its desire to refocus on its own online-to-offline
operations, called Koubei.
Investors who bought Alibaba's stake paid a discounted price
that equates to a $12.5 billion valuation for Meituan-Dianping,
compared with the $15 billion price investors paid in the new
funding round, according to people familiar with the situation. The
discount was due to Alibaba's old shares having less
downside-protection rights than the new shares sold in the latest
round. After including the $3.3 billion raised in the funding
round, Meituan-Dianping is now valued at $18.3 billion. Investors
in that round included Tencent, venture-capital firm DST Global,
and Singapore's Temasek Holdings Pte. Ltd.
Those downside-protection rights that investors in the latest
fundraising round received include a "ratchet" clause. That means
investors would be given additional shares if the company's future
initial-public-offering price is below the valuation they pay in
this current round. Alibaba's stake doesn't offer buyers those same
terms.
Meituan-Dianping's offerings are in some ways similar to the
group-buying and restaurant-booking services sold by Groupon Inc.
and Yelp Inc. of the U.S. The company said Tuesday that its total
transaction volume reached 170 billion yuan ($25.84 billion) last
year.
Rather than hold on to its small stake in Meituan-Dianping,
Alibaba wants to focus its efforts on developing its own
food-delivery platform, Koubei, because it is one that the
e-commerce company can fully control, one of the people said.
Koubei, which means "word-of-mouth reputation" in Chinese, is a
joint venture set up in June by Alibaba and its financial
affiliate, which together injected nearly $1 billion into it.
China's Internet giants have sought to expand their shares of
the fiercely competitive market for smartphone applications
connecting users with brick-and-mortar services such as taxi rides,
food deliveries, restaurant bookings and movie ticketing.
Many startups have burned out in the battle to attract users
with heavy discounts and subsidies, but Alibaba and Tencent say
they have deep pockets and supporting services such as maps, data
and payments platforms to give them an edge over other
competitors.
Alibaba's plan to exit Meituan-Dianping as Tencent builds a
position in the company shows that there are limited scenarios in
which the two rival Internet giants would collaborate.
A rare instance of such collaboration arose last year when rival
car-hailing apps separately backed by Alibaba and Tencent merged to
create a dominant competitor. That merger worked for both companies
because they don't have their own operations in the space, a person
familiar with the deal said, whereas in the case of
Meituan-Dianping, Alibaba has its own rival company to support.
Rather than run its own operations, Tencent's strategy has been
to take minority stakes in other technology companies and use the
alliances to offer a wider range of services on the company's
messaging and social-networking applications, which also have
hundreds of millions of users.
The investment in Meituan-Dianping is in line with such a
strategy.
Search company Baidu Inc., sometimes called China's Google, has
also been spending heavily to win share in the market because it
views the services as blending in with its lucrative search and map
business to increase revenue through commissions from
merchants.
Credit Suisse Group AG advised Alibaba on the sale of the
Meituan-Dianping stake, according to people familiar with the
situation.
Gillian Wong in Beijing contributed to this article.
Write to Rick Carew at rick.carew@wsj.com
(END) Dow Jones Newswires
January 28, 2016 03:45 ET (08:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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