Alibaba buys controlling stake in Southeast Asian retailer Lazada

Alibaba invests in Southeast Asian retailer Lazada
Alibaba invests in Southeast Asian retailer Lazada

Chinese e-commerce giant Alibaba has agreed to buy a controlling stake in Southeast Asian online retailer Lazada to tap into the region's lucrative consumer market.

Under the deal worth approximately $1 billion, Alibaba will buy around $500 million worth of newly issued shares in Lazada, as well as acquire shares from some existing shareholders.

Alibaba President Michael Evans said the investment will support Alibaba's expansion plans in Southeast Asia.

Jack Ma, founder of Alibaba Group. Alibaba recently said it has become the largest retailer in the world as measured by annual gross merchandise volume.
Li Xin | Xinhua | Getty Images

"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," he said in a statement.

Max Bittner, CEO of Lazada Group, added, "the transaction will help us to accelerate our goal to provide the 560 million consumers in the region access to the broadest and most unique assortment of products."

Germany's Rocket Internet will sell a 9.1 percent stake in Lazada for $137 million in cash but will still have an 8.8 percent stake. British supermarket giant Tesco will sell an 8.6 percent equity stake in Lazada for $129 million, bringing down its stake in the company to 8.3 percent. Tesco said that the proceeds from the deal will be used for general working capital.

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Both Rocket Internet and Tesco said they have entered into a "put-call arrangement" with Alibaba, giving the buyer the right to purchase, and shareholders the right to sell their remaining stakes at a "fair market value" within the 12 to 18 month period after the closing of the deal.

In buying Lazada, the idea is to help buyers and sellers on Alibaba's platform to get access to the Southeast Asian market. Lazada has already built up a supply chain, delivery and payment options in the regions in which it operates.

Marie Sun, a senior equity analyst at Morningstar, told CNBC that Alibaba is looking for future growth drivers outside China and has already invested in markets such as India, South Korea and the United States.

Sun added that Southeast Asia's e-commerce market is still underdeveloped, compared to those in China and U.S., which implies there would be higher growth in the future. "So if they can dominate the market when the mobile internet penetration increases in the region, Alibaba can benefit in the longer term," she said.

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It also continues Alibaba's expansion beyond its home market. Last year, the firm appointed country managers in the U.K. and Italy as it looked to increase its footprint in Europe and help businesses in the region sell into China. Behind its expansion plans is the idea that Alibaba can become a gateway to China for buyers and sellers on its platform.

Lazada was founded in 2012 and serves regional markets including Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

Earlier this month, Alibaba announced that as of the end of its fiscal year 2016, which ended March 31, it was the largest retailer in the world as measured by annual gross merchandise volume (GMV). The company has yet to announce earnings for the full fiscal year.

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