Alibaba reportedly eyes $2 billion acquisition of e-commerce rival NetEase Kaola

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Alibaba is in talks with NetEase to acquire its cross-border e-commerce arm Kaola and may merge the unit with its Tmall International platform, financial blog IPO Zaozhidao cited people with knowledge of the matter as saying on Wednesday.

Why it matters: The deal would represent a step toward market consolidation in China’s e-commerce sector. A merger between the country’s top cross-border players would create a single market behemoth. Alibaba could also use the deal to fend off rival Pinduoduo, which has also taken an interest in Kaola to expand its cross-border presence.

  • Alibaba-backed Tmall International made up 32.3% of China’s cross-border e-commerce market in the first quarter this year, followed by NetEase Kaola with 24.8%, according to report from research institute Analysys.
  • Growth at NetEase’s e-commerce businesses, comprising the Yanxuan and Kaola platforms, cooled to 64% on the year in 2018, after surges of 275% and 160% in 2016 and 2017, respectively. The expansion eased again to 20.2% in the second quarter of this year, according to the company’s financial earnings.

“NetEase has always been open-minded in seeking business development opportunities and strategic business partners to bring more vitality to NetEase’s cross-border e-commerce and other business units.”

—Yang Zhaoxuan, chief financial officer at NetEase, during the company’s Q1 earnings call.

NetEase’s cross-border e-commerce site Kaola reportedly discussing merger with Amazon

Details: Both Alibaba and Kaola have declined to comment on the report that the Hangzhou-based pair have agreed upon general terms on a deal and are now ironing out the details.

  • Alibaba could pay as much as $2 billion to complete the takeover, Sina Finance reported.
  • Other media sources have suggested that NetEase would be interested in talks with companies like Alibaba and Pinduoduo.

Context: NetEase Kaola previously held talks with Amazon to acquire the latter’s China operations over several months, but the deal fell through as the pair failed to agree on final terms.

  • Amid slowing-e-commerce growth, NetEase restructured its business in February this year, laying off up 50% of workforces across several business units, including e-commerce arm Yanxuan and its educational product unit.