Alibaba Expanding Into Video With $3.5 Youku Tudou Buyout

• Alibaba Group Holding Ltd BABA has made a $3.5 billion takeover bid for Youku Tudou Inc (ADR) YOKU.
• The company provides streaming video services in China.
• With access to YouTube blocked in China by the government, there is a large market available to pursue.

Alibaba is making a big move into streaming video. The Chinese e-commerce giant announced on Friday that it plans to fully acquire Youku Tudou for $3.5 billion, or $26.60 per U.S. share.

The Details

Alibaba already owned an 18.3 percent stake in Youku Toudu, which may be one of the closest things China has to Alphabet Inc GOOG GOOGL’s YouTube. The company claims to have 580 monthly users.

Alibaba will reportedly take the company private. The deal must still gain shareholder approval before it becomes official.

Lack Of American Competition

Alibaba’s push into streaming video in China will not pose a direct threat to Alphabet shareholders. YouTube is one of several big-name Internet companies, along with Facebook Inc FB and Twitter Inc TWTR, that is blocked by the Chinese government. With its acquisition of Youku Tudou and its recent launch of Tmall Box Office, Alibaba may be pushing to establish a dominant position in streaming video in China similar to the positions that YouTube and Netflix, Inc. NFLX have in the US.

Who Loses?

According to W.R. Hambrecht +Co analyst Henry Guo, the biggest losers from the deal will be other players in the Chinese streaming video space, including Baidu Inc (ADR) BIDU's iQiyi and Sohu.com Inc SOHU's Sohu Video.

"Backed by Alibaba's financial resources, Youku Tudou is likely to remain aggressive on investments on its PGC strategy and head contents acquisition," Guo explains.

Stocks React

Youku Tudou’s shares have jumped more than 22.8 percent in early trading on Friday following news of the buyout. Alibaba is trading up 2.1 percent in early trading as well. The move comes as some much-needed relief for Alibaba shareholders, who have endured a 29.4 percent decline in 2015.

Disclosure: the author holds no position in the stocks mentioned.