SHANGHAI —Alibaba Group said Wednesday it is buying out the shares it does not already own in mobile browser operator UCWeb Inc. to form the “largest merger” of internet companies in China’s history ahead of the e-commerce giant’s much-anticipated initial public offering.
UCWeb Inc. operates one of the country’s most popular mobile internet browsers, UC Browser. Alibaba invested in UCWeb in 2009 and 2013, building up a 66 percent stake in the internet company in the form of convertible preferred shares.
The acquisition of the remaining shares for an undisclosed price will result in the formation of Alibaba’s UC mobile business group, which will be led by Yu Yongfu, the chairman and chief executive of UCWeb. The acquisition will “enable deep synergies between the companies by marrying Alibaba’s strengths in e-commerce, cloud computing and big data technology and UCWeb’s leading market position and technology in mobile,” Alibaba said Wednesday.
The UC mobile business group of Alibaba will oversee the browser, mobile search, location-based services, mobile gaming, app store and mobile reader operations, Alibaba said. UC Browser has more than 500 million quarterly active users worldwide and has a significant market share in 10 countries outside of China, including India where it has more than a 30 percent market share, according to the company.
Analysts said Alibaba is struggling to keep up with competition in the mobile space, particularly from Tencent Holdings Inc., which owns WeChat, or Weixin in Chinese, a mobile messaging app that has experienced exponential growth over the past couple of years with nearly 400 million active monthly users by the end of March 2014. Tencent has been integrating payment functions into WeChat and more brands are turning to the platform to connect directly with consumers.
“Alibaba needs to purchase UCWeb since it is way behind Tencent due to WeChat,” Frank Yu, a Beijing-based internet analyst, said. “UCWeb is one of the most popular mobile browsers so it will give Alibaba some traffic and transactional ability for its Taobao and Tmall divisions.”
Duncan Clark, chairman of BDA China Ltd., a Beijing-based technology consultancy to companies, said the deal is “driven by Alibaba’s desire to secure its position in the mobile era.”
“China has more smartphones than any other country plus a higher propensity to consume via mobile than other countries, including the U.S.,” Clark said.
“Tencent’s home run with WeChat has raised the stakes for all incumbent Internet players, and the acquisition by Tencent of a 20 percent stake in e-commerce provider JD.com illustrates the increasingly competitive stance of the two companies towards each other,” he added. “Anything that can drive mobile users or traffic to Alibaba will be seen as accretive in this context.”
In March, Tencent announced the purchase of a 20 percent stake in JD.com, China’s second largest e-commerce player that launched its IPO on the Nasdaq last month.
Nearly a third of Alibaba’s merchants have opened shops on WeChat, according to Beijing-based internet research firm Analysys International. “The powerful ability of gathering users on WeChat directly challenges Alibaba’s layout in the future,” the firm said in a note last month. “It will be difficult for Alibaba to compete in the mobile space by only relying on accumulated users of the past and replication of its business model and experience for a personal computer.”
Additionally, given UC Browser’s use overseas, the partnership will further accelerate Alibaba’s international ambitions, Lin Wenbin, an analyst with Analysys International, said. “On the one hand, the cooperation will accelerate Alibaba’s internationalization process and bring international traffic sources,” Lin said. “On the other, it will enrich its IPO story and promote confidence in international capital markets.”
Ahead of Alibaba’s upcoming initial public offer, which is projected to be one of the largest in history, the e-commerce company has launched an investment blitz. Last week, the company purchased a 50 percent stake in a Chinese soccer team. Via its subsidiaries in the U.S., it is launching an e-commerce site aimed at American consumers. It has also invested in a Chinese online video site, film studio and department store and supermarket operator. Alibaba’s IPO is expected later this year.
“We are excited to welcome nearly 3,000 new colleagues to the Alibaba family who share the same mission and passion as our team. Alibaba and UCWeb both hold firm to our beliefs and share a vision to improve people’s lives through the power of the Internet,” said Jack Ma, executive chairman of Alibaba Group.
According to Lin with Analysys International, Alibaba’s investments in recent months have created an entry point into the mobile landscape that is “gradually approaching perfection.” The last remaining piece will be the cultivation of a steady and sustaining flow of users, Lin said.