Alibaba Group Holding Ltd (BABA) and Youku Tudou Inc (ADR) Enter into Definitive Merger Agreement


Alibaba Group Holding Limited (NYSE:BABA) and Youku Tudou Inc (ADR) (NYSE:YOKU) announced their entry into a definitive merger agreement pursuant to which an affiliate of Alibaba Group (“Alibaba”) will acquire Youku Tudou Inc., a leading multi-screen entertainment and media company in China (“Youku Tudou”), in an all-cash transaction (the “Transaction”).

Upon completion of the Transaction, the shareholders of Youku Tudou, other than the current investment entity controlled by Alibaba, will have the right to receive US$27.60 per American Depositary Share (“ADS”, each representing 18 ordinary shares of Youku Tudou) in cash. The price represents a premium of 35.1% over the closing price of Youku Tudou’s ADSs on October 15, 2015, one day prior to the date that Youku Tudou announced it had received a “going private” proposal from Alibaba, and a premium of 49.9% to the volume-weighted average closing price of Youku Tudou’s ADSs during the three months prior to October 15, 2015.

Youku Tudou’s board of directors (the “Youku Tudou Board”), acting on the recommendation of an independent special committee of the Youku Tudou Board (the “Special Committee”), unanimously approved the merger agreement and the Transaction and recommends that Youku Tudou’s shareholders vote to authorize and approve the merger agreement and the Transaction.

“We believe this combination with Alibaba maximizes value for Youku Tudou shareholders and significantly benefits our customers, users and team,” said Victor Koo, Chairman and Chief Executive Officer of Youku Tudou. “We are eager to work with Alibaba to grow our multi-screen entertainment and media ecosystem. We are confident that we will strengthen our market position and further accelerate our growth through the integration of our advertising and consumer businesses with Alibaba’s platform and Alipay services. With Alibaba’s support, Youku Tudou’s future as the leading multi-screen entertainment and media platform in China has been firmly secured.”

The Transaction, which is expected to close in the first quarter of 2016, is subject to customary closing conditions, including the affirmative vote of the shares of Youku Tudou representing at least two-thirds of the shares present and voting in person or by proxy as a single class at an extraordinary general meeting of Youku Tudou’s shareholders. Alibaba has entered into a support agreement with Youku Tudou’s Founder, Chairman and Chief Executive Officer Victor Koo, Chengwei Capital and various entities affiliated with them pursuant to which such shareholders have agreed to, among other things and solely in their capacity as shareholders of Youku Tudou, vote all of the ordinary shares of Youku Tudou beneficially owned by them in favor of the Transaction and against any competing transaction in accordance with the terms of the support agreement. Alibaba and the parties to the support agreement collectively beneficially own approximately 60.6% of the total voting power of the Youku Tudou shares.

Following the completion of the Transaction, Victor Koo will remain as Chairman and Chief Executive Officer of Youku Tudou. If the Transaction is completed, Youku Tudou’s ADSs will no longer be listed on the New York Stock Exchange.

Morgan Stanley Asia Limited is acting as financial advisor to Alibaba. Simpson Thacher & Bartlett LLP is serving as U.S. legal advisor to Alibaba, and Fangda Partners and Walkers are serving as PRC legal advisor and Cayman Islands legal advisor, respectively, to Alibaba.

J.P. Morgan Securities (Asia Pacific) Limited (“J.P. Morgan”) is acting as financial advisor to the Special Committee. Skadden, Arps, Slate, Meagher & Flom LLP is serving as U.S. legal counsel to the Special Committee, and TransAsia and Conyers Dill & Pearman are serving as PRC legal advisor and Cayman Islands legal advisor, respectively, to the Special Committee. Kirkland & Ellis is serving as legal advisor to J.P. Morgan. (Original Source)

Shares of Alibaba Group closed yesterday at $85.38. BABA has a 1-year high of $120 and a 1-year low of $57.20. The stock’s 50-day moving average is $69.97 and its 200-day moving average is $77.81.

On the ratings front, Alibaba has been the subject of a number of recent research reports. In a report issued on November 4, Nomura analyst Andrew Orchard assigned a Buy rating on BABA, with a price target of $95, which represents a potential upside of 11.3% from where the stock is currently trading. Separately, on October 30, MKM Partners’ Rob Sanderson maintained a Buy rating on the stock and has a price target of $105.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Andrew Orchard and Rob Sanderson have a total average return of 18.8% and -2.3% respectively. Orchard has a success rate of 57.1% and is ranked #1257 out of 3827 analysts, while Sanderson has a success rate of 51.9% and is ranked #3155.

The street is mostly Bullish on BABA stock. Out of 25 analysts who cover the stock, 22 suggest a Buy rating and 3 recommend to Hold the stock. The 12-month average price target assigned to the stock is $92.94, which represents a potential upside of 8.9% from where the stock is currently trading.