Bottom line: Alibaba’s interest in Metro’s China operations is part of its new retail strategy, while the purchase of a British payments company by its Ant Financial unit could give it a strong toehold in the European payments market.
After a period of relative quiet, e-commerce giant Alibaba (NYSE: BABA) is suddenly springing into three relatively major headlines simultaneously on the investment front. Two have a European angle, one involving a major potential investment in German retailer Metro and the other in a British financial services provider by its Ant Financial affiliate. The other is a trans-Pacific deal of sorts, and has the company investing in Bilibili (Nasdaq: BILI), a leading U.S.-listed Chinese video streamer.
In all honesty, this particular flurry of deals seems a bit random and it’s almost certainly coincidence that all are in the headlines at the same time. But that said, each does reflect one or more tendencies by this hyperactive company, which I’ve previously said has far more cash than it knows what to do with.
All that said, let’s begin with the Metro deal, which has Alibaba reportedly in talks to buy a stake in the German company’s China operations. (English article) This particular development shouldn’t come as a huge surprise to anyone, as Metro has been rejigging for a while and has a marketing partnership with Alibaba dating back to at least 2015. What’s more, the sale would follow a growing line of foreign retailers who have ditched their China operations due to stiff competition from e-commerce and also problems at home.
According to the report, the talks are just for a stake in Metro’s China operations, which include nearly 100 stores. The report notes that others are also interested in the purchase, though I would expect Alibaba to bid aggressively in line with its other recent brick-and-mortar retail investments.
This particular investment looks interesting because it’s one of the first involving a major foreign retailer, rather than Alibaba’s previous investments which have pretty much been domestic. That could give Alibaba a potential toehold in Europe if and when if ever decides to take a serious stab at expanding its core e-commerce business beyond China. The company has made a series of similar brick-and-mortar retailing investments in the last few years as part of its “new retail” strategy that combines traditional and online retailing.
Ant in UK
Next there’s the UK deal, which has Alibaba’s Ant Financial buying British payments firm WorldFirst for an undisclosed sum. (English article) Under the deal WorldFirst would become an Ant Financial subsidiary, but would continue to operate independently from its London headquarters. The company provides international payments and foreign exchange services, mostly for small enterprises.
Alibaba and Ant followers will recall that this deal, which one media outlet said could be worth around $700 million, comes about a year after the collapse of Ant’s even larger deal to buy US payments provider MoneyGram. (previous post) That deal was quashed by the US on national security grounds, which raises the question of whether this WorldFirst deal could meet a similar fate. I would put the chances of getting regulatory clearance at around 60 percent, since the UK has generally been more tolerant of such deals in sensitive areas, though sentiment seems to be rapidly swinging to more conservatism lately.
Last there’s my favorite deal of the group, which has Alibaba semi-surreptitiously buying a stake in the popular video streaming service Bilibili. (English article) Alibaba purchased an initial stake from previous shareholders of the company, which went public last year in New York. Since then it has boosted that stake to around 7.8 percent by buying more shares on the open market. (Chinese article)
The official Xinhua news agency is citing Bilibili’s CEO talking about a “collaboration,” trying to give the sense that this was an arrangement agreed to by both sides. But based on Alibaba’s past and the fact that it was boosting its stake with open market buying, I suspect this stake was probably built up somewhat behind Bilibili’s back in order to pressure a closer partnership or even outright merger. The company’s stock rose about 4 percent in New York after word of Alibaba’s ownership came out.
Alibaba did something similar in the past when it secretly bought a stake in US group buying site Groupon (Nasdaq: GRPN) through open market purchases, though nothing ever came of that tie-up. I suspect Bilibili could be wary of tying up with such a big company, even though Alibaba does have a strong place for Bilibili alongside its Youku online video and other entertainment assets. Accordingly, the chances for a tie-up of some sort seem pretty likely, and perhaps we’ll even see an outright acquisition.