Alibaba Group Holding Ltd (BABA.N), China’s biggest e-commerce company, will acquire 33 percent of its payments affiliate Ant Financial, which houses the Alipay payment processing system and other financial services.
The deal, which ends a profit-sharing arrangement that goes back to 2014 and was worth more than $330 million last year, clears the way for an initial public offering of China’s most valuable financial technology company.
China’s biggest e-commerce operator will not pay any cash to acquire one third of the company that pays Alibaba 37.5 percent of its profit, plus 2.5 percent of its outstanding loans each year. Instead, Alibaba will swap certain intellectual property rights to fund its acquisition of the new stake in Ant Financial, which is currently valued at roughly $60 billion.
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Ant Financial currently provides its financial services to over 450 million users in China and beyond. Alipay makes up much of the business as the payment platform enables users to hail taxis, book hotels, buy movie tickets, and more, from within its app. It also gets a commission of around 0.18 percent on every dollar it processes on Alibaba’s marketplaces.
Earlier this year, Ant Financial lost its battle to acquire US money-transfer company MoneyGram though it raised the value of its bid to $1.2 billion, up 36 percent of its original $880 million offer.
According to media reports, its rival Euronet openly lobbied US lawmakers, saying that Ant’s proposal created a national security risk although MoneyGram would remain headquartered in Dallas and continue to operate under its existing brand. Several congressmen criticized the deal with the affiliate of Alibaba, saying that the Chinese government has nearly 15 percent stake in Ant.
Commenting on the deal, Daniel Zhang, CEO of Alibaba Group, said: “This transaction is a significant step for Alibaba to enhance our long-term strategic relationship with Ant Financial as we continue to pursue our mission to make it easy to do business anywhere. Importantly, an equity stake in Ant Financial enables Alibaba and our shareholders to participate in the future growth of the financial technology sector, as well as the benefits of user growth and improved customer experience.”
Eric Jing, CEO of Ant Financial, added: “We are pleased to strengthen our strategic relationship with Alibaba. This marks the next step in our collaboration to generate more strategic synergies and deliver tremendous value proposition to our customers. We look forward to continuing to work with Alibaba as we pursue our mission to bring the world equal opportunities.”