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 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."
Lazada saw revenue jump 81 percent to $190.0 million in the first
nine months of 2015, while active customers more than tripled to 7.3
million. However, its adjusted loss before interest, tax,
depreciation and amortization more than doubled to $212.9 million.
Rocket reports 2015 figures on Thursday.
Under the deal announced on Tuesday - Alibaba's biggest overseas
investment so far, according to Thomson Reuters data - the 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 Swedish investor 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, 12-18 months after the deal closes, to
buy remaining stakes from 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.
The sale is welcome news for Rocket, which has seen its stock sag
since it listed in October 2014 on investor concern that all its
leading start-ups are still making heavy losses. The stock was up
4.9 percent at 1144 GMT.
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"We had always had concerns that Lazada could fall victim to intense
competition from Alibaba, yet here we have an example of an internet
giant buying out the smaller competitor at a substantial valuation,"
said Berenberg analyst Sarah Simon.
"Fears that Rocket Internet cannot build credible businesses should
thus be appeased."
Lazada works with third-party players and develops its own logistics
to improve goods delivery to customers' doors. In December, the
company said it planned to double its number of 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.
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.
Lazada chief executive Max Bittner said Southeast Asia "is highly
fragmented and diverse with significant barriers to entry".
Credit Suisse (Hong Kong) Limited acted as exclusive financial
adviser to Alibaba on the transaction, while Goldman Sachs (Asia)
LLC was exclusive financial adviser to Lazada.
(Additional reporting by Aradhana Aravindan in SINGAPORE, Fransiska
Nangoy and Eveline Danubrata in JAKARTA and Emma Thomasson in
BERLIN; Editing by Kenneth Maxwell and Mark Potter)
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