Bottom line: Ant Financial will counter bid for MoneyGram, following a surprise rival bid for the company, while Alibaba Pictures’ absorption of the former Youku Tudou looks like a logical consolidation of Alibaba’s filmed entertainment assets.
Two of Alibaba (NYSE: BABA) founder Jack Ma’s biggest endeavors outside his core e-commerce business are in the headlines, led by a counter bid for a US financial services company his Ant Financial is trying to acquire. That particular deal has a US company called Euronet Worldwide announcing a bid for MoneyGram that’s 15 percent higher than Ant’s own $880 million bid made back in January. The other news is slightly more mundane but still significant, and has Ma’s Alibaba moving its Youku Tudou online video service into its separately listed Alibaba Pictures (HKEx: 1060) filmed entertainment unit.
Both of these stories reflect Ma’s desire to move outside his original e-commerce business and into other areas, something that China’s major Internet companies are all trying to do to some extent. Ma’s biggest success by far is with Ant Financial, which was originally part of Alibaba and whose core asset is its Alipay electronic payments service. Entertainment has been more problematic for Ma, and this latest reshuffle shows it’s still trying to figure out what the future landscape will look like for video entertainment products and services.
Let’s begin with the Ant Financial news, which could come as a major setback for the company as it attempts to make some baby steps outside China. Ant’s Alipay is already expanding its footprint in Asia by moving into various markets like South Korea, but is still mostly targeted at Chinese traveling to those countries. It launched the bid for MoneyGram, which operates an electronic money-transferring network, back in January, in an attempt to pick up an asset with a more international customer base.
Now it seems a fly has landed in the ointment of that deal, following this new bid by Euronet at $15.20 per share, sharply higher than Ant’s original $13.25. (English article) MoneyGram shares jumped 25 percent on the news to $15.77, indicating investors believe Ant or perhaps another buyer is likely to make a counter bid that’s even higher.
Euronet is trying to use some scare tactics to make its case, arguing the Ant Financial bid is fraught with uncertainties due to the sensitivity of this kind of cross-border deal in the financial services sector. Ant isn’t saying anything on the matter, but it does seem almost inevitable that it will launch a counter bid.
The political risk element is certainly a valid one, especially under the current U.S. Trump administration. But that said, Ant really wants this particular asset, especially as it wants a good global story to tell as it prepares for an IPO likely to raise more than $1 billion as soon as this year. It’s hard to know how far the bidding war will go since we don’t know much about Euronet. But I expect we could see the company make another bid if Ant raises its initial offer, even though I expect Ant will still emerge as the winner.
Then there’s the video news, which has Alibaba formally moving its Youku Tudou business into Alibaba Pictures. (Chinese article) The move was part of a broader strategic tie-up between Alibaba’s own internal entertainment unit and Alibaba Pictures, and was announced by the latter’s CEO in an internal memo and also in a public announcement. That memo detailed plans for sharing of resources, including licensing rights and copyrights, and said the entire Youku Tudou team will move over to Alibaba Pictures.
This particular move comes about a month after Alibaba Pictures warned that it would post a major loss of about 1 billion yuan ($145 million) for last year. We don’t know how much money Youku Tudou is losing at the moment, but it posted a loss of about $70 million in the third quarter of 2015 in one of its final public disclosures before it was taken private by Alibaba.
The bottom line is that neither of these video companies is probably earning any profits at the moment, so perhaps Alibaba wants to consolidate them into a single money-losing entity. The move also makes sense because Youku was already moving into content production before it was acquired by Alibaba, so this way it will have closer contacts with Alibaba Pictures’ own content-creating team.
At the end of the day Alibaba is certainly positioning Alibaba Pictures to emerge as a leading creator and distributor of filmed entertainment. The big problem, of course, is that no one has found a way to make profits from that particular combination. But if and when anyone does come up with a formula in the future, Alibaba should be well positioned to thrive in the space.