Alibaba Said To Be To Nearing $2B Deal For NetEase Kaola

Chinese eCommerce marketplace Alibaba is reportedly close to wrapping up its $2 billion acquisition of NetEase’s cross-border retail platform Kaola, according to a report in TechCrunch on Wednesday (Sept. 4).

Under the acquisition, Kaola will merge with Alibaba’s Tmall Global while still operating independently to create a massive cross-border eCommerce business. At the end of last year, Tmall Global held a 31.7 percent share of the market, while Kaola had about 24.5 percent, much larger than rivals JD Worldwide (11.5 percent) and Amazon (6 percent).

Caixin Global first reported Alibaba’s Kaola acquisition for $2 billion in cash on Aug.15, but the deal fell apart, according to Wednesday’s report.

Alibaba reportedly will install a new CEO to replace Kaola Head Zhang Lei. Kaola employee stock options will be converted into Alibaba shares. The $2 billion deal will likely be a combination of cash and shares, or cash and assets.

An Alibaba spokesperson said the company does not comment on market rumors, according to the report, and NetEase had no comment.

Alibaba is also expected to invest in NetEast Cloud Music, but that deal is unrelated to the Kaola acquisition. NetEase is one of the country’s largest game developers.

China’s cross-border eCommerce market hit $1 trillion in transactions in the first quarter of 2019, 36Kr reported. 

Despite Kaola’s impressive growth, NetEase, known for its gaming and music operations, has been looking to sell its eCommerce unit for most of the year. In fact, Amazon was looking at the platform earlier this year — before it decided to close its Chinese online store.

“Either Amazon would double down [on China] or sell the business to NetEase and NetEase would double down,” one analyst said. “But neither happened, because both of them wanted to sell. It doesn’t make sense for NetEase to keep [Kaola]. Because it’s small scale.” 

Online sales in China are expected to reach almost $2 trillion this year, according to eMarketer, which expects the figure to rise to $2.4 trillion next year. That compares with $587 billion in the U.S. this year, rising to $668.5 billion in 2020.