China’s largest online emporium will pay $500 million for new shares in the closely held company and purchase an equal amount from existing investors, Alibaba said in a statement. Investors selling include Germany’s Rocket Internet SE, British supermarket chain Tesco Plc and Investment AB Kinnevik.
Alibaba has the right to purchase remaining stakes of existing shareholders in Lazada at fair market value during the 12-18 month period after the closing of the transaction.
The agreement values Lazada at $1.5 billion, Rocket said in a separate statement. It’s selling a 9.1 percent stake in Lazada and keeping an 8.8 percent slice.
Expectation of SEA shopping boom
Alibaba disclosed the transaction will likely help brands and distributors around the world that already do business on Alibaba’s platform, as well as local merchants, to access the Southeast Asian (SEA) consumer market. The Chinese company is buying its way into a region on the cusp of an online shopping boom, as fast-growing mobile and Internet usage propels consumer spending.
Founded in 2012, Lazada is a one-stop e-commerce gateway for local and international brands to consumers in six distinct SEA markets, namely Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. Altogether, the countries have a combined population of about 560 million and internet user base of around 200 million, according to Internet Live Stats.
Alibaba will be wading into a market where no single player yet dominates. While Southeast Asia’s growing affluence is expected to fuel growth in online shopping, many countries in the region still lack the transport and payments infrastructure so crucial to the widespread adoption of e-commerce.
The deal seems to represent a departure for Alibaba, which has mainly chosen to grow organically on its home turf, said Saemin Ahn, managing partner at Rakuten Ventures, which manages a $285 million fund and invests in the U.S. and Asia. Alibaba president Michael Evans said the investment is aligned with their strategy of connecting brands, distributors and consumers wherever they may be.
Billionaire Alibaba Chairman Jack Ma has set a goal of getting at least half the company’s revenue from overseas, with the Lazada deal adding sales of clothing and electronics in six Southeast Asian markets.
Latest attempt at overseas expansion
Alibaba, which got more than 86 percent of its revenue from China in the December quarter, has made previous attempts to expand overseas through direct investments.
It bought San Mateo, California-based 11 Main Inc., only to sell the niche e-commerce site after a few years to rival online marketplace OpenSky when it failed to generate the synergy it was looking for. In exchange, Alibaba said at the time it would hold a “significant” stake in the combined entity.
Back home, Alibaba is pushing its own AliExpress site to buyers in emerging markets such as Russia and Brazil. Fueled by Russian shoppers looking for better deals online, AliExpress, which ships goods directly from Chinese sellers to foreign markets, became the biggest shopping site in the country in 2014, according to researcher TNS.
“Globalization is a critical strategy for the growth of Alibaba Group today and well into the future,” Evans said. “With the investment in Lazada, Alibaba gains access to a platform with a large and growing consumer base outside China, a proven management team and a solid foundation for future growth in one of the most promising regions for e-commerce globally.”
(With inputs from Bloomberg)