E-commerce titan Alibaba Group Holding Ltd. is seeking buyers for its stake in Meituan-Dianping, China’s leading online provider of movie ticketing, restaurant bookings and other on-demand services, as it seeks to build its own native platform.
Alibaba is selling its roughly 7-percent stake in the company, which was created in October through a merger of two rival startups Meituan.com and Dianping Holdings Ltd., whose respective group-buying and restaurant-booking services have been compared to Groupon and Yelp in the U.S., the Wall Street Journal reported on Sunday citing insider sources.
The deal could fetch a price of roughly $1 billion, based on the valuations being discussed in Meituan-Dianping's current fundraising round, the report said.
However, one source said that the investors are seeking a discount on Alibaba's stake because Meituan-Dianping is offering investors a "ratchet" clause in its latest fundraising round. The clause allows investors additional shares if the company's future initial public offering price drops below the valuation they pay in the current round. Alibaba's stake does not offer prospective buyers the same terms.
Alibaba's move to sell off its investment comes as another Chinese Internet giant, Tencent Holdings Ltd., is planning a $1 billion investment in Meituan-Dianping.
Meituan-Dianping, which is looking for fresh funds to finance its expansion plans, hopes to raise as much as $3 billion in investments, putting it at an estimated $20 billion valuation including fresh capital, according to people familiar with the situation.
As of writing, the discussions are fluid and the valuations could change depending on investor interest and terms offered.
In return for selling its small stake in Meituan-Dianping, Alibaba is setting its sights on developing its own food delivery platform, Koubei, as it allows the e-commerce firm full control, the Wall Street Journal said in its report. Koubei, which roughly means "word-of-mouth reputation" in Chinese, is a joint venture established by Alibaba and its financial affiliate valued at $1 billion in investments.
China's Internet companies are scrambling to expand their shares in the highly competitive market for smartphone apps connecting users to various brick-and-mortar services such as taxi rides, movie ticketing and food deliveries. And while many startups have burned out in the battle to attract more users with heavy discounts and subsidies, bigger companies like Alibaba and Tencent have deeper pockets and supporting services such as maps, data and payment platforms that give them an edge over other competitors.
In a statement, Alibaba executives said that its dominance in e-commerce can translate to success in the offline, local services industry, pointing to the heavy traffic of millions of users of its shopping app Taobao and payments affiliate Alipay. The company also has a mapping division and other assets to support such a business, the statement added.