Alibaba has agreed to acquire AutoNavi, the most popular digital mapping company in China, in a deal valuing the company at $1.5 billion. The deal is expected to close in the third quarter.
The deal follows a series of partnerships and acquisitions announced as Alibaba prepares to go public on the New York Stock Exchange this year. The company has made multi-million dollar investments in Tango to improve its messaging service, in Haier to improve its ability to ship packages to far-flung customers, and in Intime Retail to create an “online-to-offline” service.
Besides the investment in Tango, all of these deals represent Alibaba’s attempts to understand and build products for the physical world. The company already sells physical goods — now it’s trying to get better at delivering them and making sure they’re available outside its website. Purchasing a mapping company could help the company do all of those things, especially in a country like China, where licenses to create mapping and navigation services are scarce.
Google acquired Waze, a social mapping company, for largely the same reason. As I wrote when that deal was announced:
Google already knows what you’re trying to find on the Web. The near-ubiquity of its search engine has allowed the company to develop all kinds of products, from Google Now to Voice Search, with the sole purpose of helping you better navigate your digital world. Now the company is trying to do the same thing for the physical realm, having recently announced a newly-personalized Maps product and — according to a flurry of reports from Bloomberg, the Wall Street Journal, andGlobes – the acquisition of the Israel-based social mapping service, Waze.
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ZDNet reports that Alibaba has been after AutoNavi for some time:
The battle for e-commerce supremacy is heating up in China as Internet giant Alibaba snaps up the mobile-map developer AutoNavi — a long sought deal that Alibaba hopes to parlay into a platform that spans online, mobile and brick-and-mortar retail.
Alibaba likely has specific intentions on how it will use AutoNavi’s mobile-map capabilities. Licenses that allow the mapping of Chinese roads are scant, and AutoNavi holds the keys to one of the few. Alibaba could fold that map muscle into its own platform, giving would-be shoppers directions to nearby stores and sending them mobile ads once they’re inside.
Bloomberg breaks down the financial aspects of the deal:
AutoNavi shareholders will receive $21 in cash for each American depositary receipt, the companies said today in a statement, the same terms that Alibaba originally offered in February. The bid is a 27 percent premium to AutoNavi’s closing price on Feb. 7, before the offer was first disclosed.
AutoNavi shares rose to $20.55 at 10:41 a.m. in New York, after closing at $20.05 yesterday.
The deal is expected to close in the third quarter. AutoNavi shareholders still need to vote on the takeover.
Pando weighs in
I wrote about Alibaba’s reported IPO plans when they were first reported:
Chinese e-commerce monolith Alibaba is reportedly planning to hold an initial public offering as early as April. The company is expected to list in New York after encountering regulatory issues in Hong Kong, and has reportedly tapped Simpson Thacher & Bartlett, Credit Suisse, and Morgan Stanley to handle the IPO. It’s said to be seeking at least $15 billion in funding.
The offering is expected to be the biggest since Facebook went public in May 2012. Investors are excited enough that Yahoo, which owns 24 percent of Alibaba, has seen its stock rise on the news. BGC Partners analyst Colin Gillis told Bloomberg that investors have actually been buying Yahoo stock as a way to get some slice of Alibaba. ‘A lot of people are investing in Yahoo as a proxy for Alibaba,’ he said. ‘In fact, I would say the majority of people are.’
I then placed its investment in Tango in context:
While these services have users from around the world, most of these companies have centralized fiefdoms in certain regions. Some, like WhatsApp and Tango, are popular in the United States and Europe. Others, like Viber and Line, are popular in Southeast Asia. This can frustrate consumers with contacts around the world, as they are forced to use a variety of services to perform essentially the same function — if any service manages to remove that hassle, it stands to attract many of the people who care more about their contacts than the services they use.
This investment could allow Alibaba and Tango to create a service (or at least a couple of services) that will do just that.
And then I wrote about how Alibaba’s investment in Intime puts it ahead of American e-commerce companies:
American web companies have long been rumored to open their own storefronts. Google has been rumored to be creating a store for its tablets, laptops, and other physical products since thebeginning of last year. Amazon was expected to open its own physical stores in Seattle in 2012. Neither company has opened or hinted at opening such stores, but the rumors persist. Now it seems that Alibaba will beat them to the punch, just like it did with same-day delivery.
Alibaba’s deal with Intime doesn’t even come close in scale to the acquisitions companies like Facebook or Google have made in the last few months. But as an investment from an e-commerce company looking to quash its competition, creating a viable “online-to-offline” experience might help Alibaba stay in front of its competition and continue to best its American counterparts.
[image via wikimedia]