The announcement by Alibaba Pictures Group Ltd comes less than two
months after Alibaba Group completed its $804 million purchase of a
60 percent stake in the film and TV production company once known as
ChinaVision Media Group Ltd.
The deal was among the $10 billion or so Alibaba Group and its
affiliates have spent since the beginning of last year on
acquisitions which ventured beyond its traditional e-commerce roots
to fend off competition from rivals like Tencent Holdings Ltd, Baidu
Inc and JD.com.
But the speed at which the group has conducted some of its purchases
has raised investor concerns. In June, Alibaba bought China's most
successful football club, the Guangzhou Evergrande, for $192 million
in a deal which was hatched over a few drinks.
"They're under a lot of competition pressure, which led them to make
some of these deals, but I don't think a lot of them are actually
well thought out," said Tony Chu, a Hong Kong-based portfolio
manager at RS Investments.
"When you see the extent of the deals, there are so many of them
recently announced, that raises the question as to how much due
diligence the company has made on some of these deals," he told
Alibaba Group, whose platforms handle more goods than EBay Inc and
Amazon.com Inc combined, is gearing up for a U.S. IPO this year that
bankers and investors expect to surpass the $16 billion raised by
Facebook Inc when it listed in 2012.
In a statement, Alibaba Group said it supported the review into
Alibaba Pictures' finances. "The new management team has a firm
commitment to transparency, good corporate governance, and investor
protection," it said.
Deloitte Touche Tohmatsu was listed as the auditor of ChinaVision
since 2011, according to the company's 2013 annual report.
Deloitte said in an e-mailed statement that it could not comment on
clients because of confidentiality reasons.
Days after completing the deal, Alibaba Group appointed a new board
of directors for Alibaba Pictures and named Polo Shao, Alibaba's
chief risk officer, as chairman. Liu Chunning, a former Tencent
executive who heads Alibaba's digital entertainment business, was
also appointed acting CEO.
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Goldman Sachs advised Alibaba on the investment in Alibaba Pictures,
while REORIENT Financial Markets Ltd advised the target company.
In its filing to the stock exchange, Alibaba Pictures said the
possible "non-compliant treatment of financial information" was
before the Alibaba purchase.
It asked for its shares to be suspended until further notice, and
said it would delay reporting its interim results while its audit
committee completes an inquiry into the financial statements.
"The company is not yet in a position to comment on the potential
impact on its current and historical financial affairs of the
matters described above," Alibaba Pictures said.
Last month, it also issued a profit warning.
Shares of Alibaba Pictures last traded at HK$1.61 before they were
halted on Friday. The stock has more than doubled since late
February, prior to the announcement of Alibaba Group's investment.
Before the Alibaba investment, the film and TV company counted
Sequoia Capital among its biggest shareholders as well as Dong Ping,
co-producer of the award-winning 2000 film "Crouching Tiger, Hidden
Dragon". Alibaba's rival Tencent also owned a stake in Alibaba
(Additional reporting by Paul Carsten and John Foley in BEIJING;
Editing by Miral Fahmy and Ryan Woo)
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