Alibaba Group Holding Ltd. is going to take full control of the startup Ele.me as it steps up efforts to expand in China’s fast-growing market for the local delivery of food and other services.
The deal implies an initial valuation of $9.5 billion for Ele.me, according to Alibaba in a statement. Alibaba and affiliate Ant Small and Micro Financial Services Group Co. already owned about 43 percent of the startup’s voting shares.
Alibaba shares were down 2 percent to $179.88 at 10:17 a.m. in New York.
Ele.me — which means “hungry yet?” — operates an army of delivery people on motorbikes across the country and is striving for supremacy in the local services industry with Meituan Dianping, a startup backed by Alibaba rival Tencent Holdings Ltd.
The market is starting to roll as people turn more and more to their smartphones to order food, schedule beauty treatments and hire domestic helpers.
“As one of the most frequently used applications, food delivery is the single most important entry point in the local services sector,” Daniel Zhang, the chief executive officer of Alibaba Group, said in an internal email to staff Monday.
“We can already see that a vast, multi-dimensional local instant delivery network formed through a food delivery service will be an essential piece of the commerce infrastructure.”
The Ele.me deal is part of a bigger foray by China’s largest e-commerce company into logistics and brick-and-mortar assets. Alibaba is taking over longtime delivery affiliate Cainiao and investing in warehouses. It has also made investments in traditional retailers, including department store chain Intime Retail Group Co. and China’s largest operator of Walmart-style hypermarkets.
Zhang Xuhao, Ele.me’s founder, will become chairman of the company, while Wang Lei, vice president of Alibaba Group, will become the chief executive officer of Ele.me, the company said.
Alibaba continues an expansion in e-commerce as it faces greater competition across Asia. Last month, the company said it would invest another $2 billion in Lazada Group SA to bolster its presence in Southeast Asia, where Amazon.com Inc. has launched in Singapore and Sea Ltd.’s Shopee is expanding to win consumers.
The Ele.me deal may cut into profit margins in the short term, but Alibaba has demonstrated a willingness to make such acquisitions for gains in the future. It acquired the video service Youku Tudou and mapping provider AutoNavi, for example.
BWorldFinance is your primary source of news in the financial market, technology, and more. Visit bworldfinance.com now and get the latest happenings in the market. Register an account now and begin your investing journey!