Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) has bought a controlling stake in Lazada as it bids to expand its footprint in South East Asia. Bloomberg reports that the company is investing $1 billion in the online retailer as part of the deal.
Terms of the Deal
Alibaba is to pay $500 million for new shares in the e–commerce platform. The remaining amount is to be used to purchase stock from existing investors as the tech giant looks to accrue a controlling stake.
Some of the investors from which Alibaba will buy stock from include Rocket Internet SE, Tesco Plc, and AB Kinnevik. Terms of the deal also stipulate that Alibaba Group Holding Ltd (NYSE:BABA) could buy out certain Lazada shareholders after 12 to 18 months once is the deal closes.
Expanding Overseas
The investment is all part of Alibaba push that seeks to attract more sales beyond China. Chairman Jack Ma has already set a goal of generating almost half of the company’s total revenue from overseas. Lazada, which deals in clothing as well as electronics, should help steer the company in this direction. With the acquisition, the e-commerce giant gains access to a larger and growing consumer base outside China.
China has been a key driver of the company’s earnings over the years. Expanding into other global markets according to Ma could help the company offset weakness in China. Lazada operates in Indonesia, Malaysia, Singapore the Philippines, Thailand, and Vietnam. With a controlling stake in the company, Alibaba Group Holding Ltd (NYSE:BABA) should be able to expand its footprint in these countries given its financial muscle.
Lazada will also relieve the Chinese juggernaut the burden of having to invest in logistics in the new markets. Li Yujie and analysts at RHB Research Institute believes it could have taken longer, and a lot of money had Alibaba Group Holding Ltd(NYSE:BABA) decided to start from scratch in the building of its empire in the new markets.
“What Alibaba could do is integrating the businesses and introduce more existing merchants to Lazada to export their products overseas,” said Mr. Yujie.