(Reuters) — Alibaba Group Holding Ltd said on Tuesday it has agreed to buy a controlling stake in Southeast Asia online retailer Lazada Group for about $1 billion, its biggest deal overseas, as the Chinese e-commerce giant seeks fertile new turf while growth slows at home.
Lazada, founded by Germany’s Rocket Internet in 2012, is headquartered in Singapore and also operates in Malaysia, Indonesia, the Philippines, Thailand and Vietnam. That affords Alibaba a chance to tap the region’s growth potential, but the market is also competitive and fragmented, with only a tiny fraction of total retail sales currently conducted online.
“Southeast Asia has a lot of overlap with China in terms of consumer habits, intra-regional trade and tastes,” said Duncan Clark, chairman of investment advisory firm BDA China and author of a book on Alibaba.
“Rocket in this case has managed to create a successful, multi-market player in a region which needs scale and breadth to be viable. This has obvious appeal to Alibaba.”
Under the deal – Alibaba’s biggest overseas investment so far, according to Thomson Reuters data – the Chinese firm will buy about $500 million of newly issued Lazada shares. The rest will be bought from current shareholders.
These include Britain’s biggest supermarket operator, Tesco Plc, which said it would sell an 8.6 percent stake for $129 million, valuing Lazada at $1.5 billion. Rocket and Investment AB Kinnevik will also sell shares.
Neither Alibaba nor Lazada specified the size of the stake purchased, but the sales imply a two-thirds holding.
Alibaba also has the option, between 12 and 18 months after the deal closes, to buy the remaining stakes from certain Lazada shareholders.
TOUGH, HOME AND AWAY
China is getting tougher for Alibaba. In the last three months of 2015, the total value of goods transacted on the company’s e-commerce sites rose by its slowest annual rate in more than three years.
The company has been hit by a barrage of issues, including China’s worst economic growth in a quarter of a century, an effort to clean up prevalent fakes on Alibaba’s platforms, and tough competition from smaller rival JD.com Inc, analysts have said.
Rocket Internet is known for funding and ultimately selling start-ups that follow the model of successful existing businesses. When Lazada first emerged, it was pegged as a Southeast Asian version of Amazon.com Inc.
Lazada works with third-party players and develops its own logistics to improve goods delivery to customers’ doors. In December, the company said it plans to double its warehouses from 10 to 20 over the next few years to keep up with a surge in e-commerce from customers outside big cities.
The deal isn’t Alibaba’s first investment in Southeast Asia. The Chinese company also has a stake in logistics firm Singapore Post Ltd.
But the e-commerce market for business-to-consumer sales across all of Indonesia, the Philippines, Singapore, Malaysia, Vietnam and Thailand was just $10.5 billion in 2015, or 1.5 percent of retail volume, according to consultancy firm Frost & Sullivan.
By comparison, it accounts for 12 percent of retail in China, and 8 percent in the United States.
In Lazada’s Tuesday statement, Max Bittner, chief executive, said Southeast Asia “is highly fragmented and diverse with significant barriers to entry”.
Credit Suisse (Hong Kong) Limited acted as exclusive financial advisor to Alibaba in the transaction, while Goldman Sachs (Asia) LLC was exclusive financial advisor to Lazada.