Alibaba to buy majority stake in Rocket Internet's e-com venture Lazada for $1B

Making its largest oversees acquisition, Chinese e-commerce titan Alibaba Group Holding Ltd has agreed to buy a controlling stake in Southeast Asia-focused horizontal e-tailer Lazada Group for about $1 billion.

Alibaba will invest $500 million in newly issued shares of Rocket Internet-backed Lazada besides paying $500 million to acquire shares from its existing shareholders.

The deal will help Jack Ma-led Alibaba Group to expand into the lucrative, high-growth Southeast Asia market as it witnesses a further decline at the home market.

"The transaction is expected to 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 consumer market," Alibaba said in a press statement.

Founded in 2012, Lazada is present in Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. According to Internet Live Stats, these six countries together have a population of approximately 560 million and an estimated internet user base of 200 million. With just 3 per cent of the region's total retail sales conducted online, Southeast Asia offers unlimited opportunities for Alibaba that largely depends on the home market for revenues.

"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," said Michael Evans, president at Alibaba.

In addition to Rocket Internet, Lazada counts Verlinvest, Investment AB Kinnevik, Tesco, Holtzbrinck Ventures, Summit Partners and Tengelmann Group among its investors.

No stranger to big-ticket acquisition, Alibaba had agreed acquire Hong Kong-based South China Morning Post (SCMP) among other media properties for HK$2.06 billion ($266 million) in December 2015.

Alibaba Group has also invested in Indian mobile wallet firm and online marketplace Paytm and e-commerce company Snapdeal. According to reports, Alibaba is planning to establish a direct presence in India this year. The company is also exploring a tie-up with the Tata Group, The Economic Times reported recently. Although Alibaba has had an India site for years, it hasn't scaled up significantly.

More importantly, an India entry will extend Alibaba's rivalry with Jeff Bezos-led Amazon to the South Asian nation. Alibaba is the world's largest e-tailer by gross merchandise value while Amazon is the biggest by market value and net revenue.

Meanwhile, the deal is a lifeline for German e-commerce incubator-cum-investor Rocket Internet, whose credibility to build successful businesses has increasingly been questioned of late as many of its portfolio companies have been making significant loses. Rocket Internet has a sizable presence in Asia, including India. Last November, as first reported by VCCircle, e-commerce giant Amazon.com, Inc was in talks to acquire Jabong.com, Rocket's most serious bet in India, where the asking valuation was $1.1-1.2 billion. The deal was called off due to a mismatch in valuation by the prospective buyer and Jabong's shareholders.