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Alibaba Acquires Kaola from NetEase in a $2 Billion Agreement

Chinese multinational e-commerce and tech conglomerate, Alibaba Group, has just acquired Kaola, from NetEase Inc. The acquisition worth $2 billion will create what will be China’s largest e-commerce platform. The announcement in a recent press release by both companies represents a culmination of several weeks of largely unconfirmed reports about an ongoing negotiation between both companies.

The acquisition will allow Kaola to continue operating independently, keeping its name. However, Zhang Lei will be replaced by Alibaba’s Tmall Import and Export general manager, Alvin Liu, has the new Kaola CEO.

Kaola and Tmall are China’s biggest e-commerce cross-border outfits with total control of more than half of the entire market with 24.5% and 31.7% respectively. Their merger will mean that competitors such as JD Worldwide, Amazon China and VIP International might be no match at all.

According to NetEase CEO William Ding:

“We are pleased to have found a strategic fit for Kaola within Alibaba’s extensive ecosystem, where Kaola will continue to provide Chinese consumers with high-quality import products and services. At the same time, the completion of this strategic transaction will allow NetEase to focus on its growth strategy, investing in markets that allow us to best leverage our competitive advantages.”

As part of a separate deal, Alibaba along with its Yunfeng Capital investment firm founded by Jack Ma, will also be investing $700 million into the NetEase Cloud Music platform. The music app will however still remain in NetEase’s control.

The press release also notes that this isn’t final and will only be concluded after “certain closing conditions” are met. Before now, NetEase Music received a $600 million investment in November last year with participation from Baidu Inc., Boyu Capital, and General Atlantic.

This merger between both companies would serve as competition for Chinese multinational conglomerate, Tencent Holdings Limited. Tencent is involved in technology, artificial intelligence, and entertainment not just in China but internationally as well.

Pinduoduo Inc., for example, was founded in September 2015 but a few months later in July 2016, received more than $110 million in a B round funding from Tencent and two other firms. Furthermore, Tencent is a major player in the Chinese music streaming business which will now compete with NetEase Music’s new status. NetEase also has its tentacles in gaming, a sector Tencent is also visibly interested in.

Daniel Zhang, Alibaba Group Chief Executive Officer, has suggested that the merger between both firms will not only foster collaboration in the digital entertainment space but also help create a better flow among all the parts of the Alibaba group.

“Alibaba is confident about the future of China’s import e-commerce market, which we believe remains in its infancy with great growth potential. We welcome Kaola to the Alibaba family and value NetEase’s contributions in incubating an e-commerce platform with strong import capabilities.

With Kaola, we will further elevate import service and experience for Chinese consumers through synergies across the Alibaba ecosystem.”

Alibaba Acquires Kaola from NetEase in a $2 Billion Agreement

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