Alibaba Group Holdings has said it will buy the rest of Youku Tudou, China's version of YouTube, it doesn't already own in an all-cash deal. This will help the company to secure a share of the fast-growing online video market in China.
In April 2014, Alibaba had acquired a 16.5% stake in the U.S.-traded Youku Tudou. It will now buy the remaining stake for $3.7bn (£2.5bn,€3.4bn). The deal values Youku Tudou at $4.4bn.
The Chinese e-commerce company will pay $27.60 for each American depositary share, representing a 35.1% premium over its closing price on 15 October.
Summit Research analyst Henry Guo said the unprofitable Youku Tudou needed this deal with Alibaba. "With Alibaba's support, Youku Tudou's future as the leading multi-screen entertainment and media platform in China has been firmly secured," Youku Tudou CEO Victor Koo said.
Koo said he is confident that the deal will both strengthen its market position and accelerate its growth through integration of its advertising and consumer businesses with Alibaba's platform and Alipay services. The chief executive, who owns about 18% of the company, will remain at the helm of Youku Tudou after the deal closes in the first quarter of 2016.
Alibaba's previous deals in China
In March 2014, Alibaba agreed to acquire a controlling stake in ChinaVision Media Group. The deal helped it gain access to movie content and television. The company is now called Alibaba Pictures.
In April 2014, Alibaba said it would pay about $1bn for a 20% stake in Wasu Media Holding.
In March 2015, the Hangzhou, China-headquartered company invested $383m in TV program producer Beijing Enlight Media.
The deal for Youku Tudou marks a vote of confidence in China's economy, which has been witnessing a slowdown in recent times. It supports previous statements by Alibaba's Chairman Jack Ma who had said that investors should not overreact to his country's slowing growth.
HSBC Holdings CEO Stuart Gulliver also recently stated that the China slowdown was over-hyped.