Alibaba Said to Invest in Tencent's Chinese Food Startup

  • Alibaba said to control Ele.me after $1.25 billion round
  • Funding said to value food-delivery service at $4.5 billion

China’s Ele.me, a food-delivery startup backed by Tencent Holdings Ltd., plans to close a funding round of at least $1.25 billion by as early as mid-February in a deal led by competitor Alibaba Group Holding Ltd., according to people with direct knowledge of the matter.

Alibaba will be Ele.me’s controlling shareholder after the funding, which values the service at about $4.5 billion, the people said, asking not to be identified because the information is private. The deal could be announced by the Lunar New Year holiday that starts Feb. 8, one of the people said. Ele.me was in merger talks with group-buying site Meituan.com, but those fell apart, the people said.

Tencent, Alibaba and Baidu Inc.are competing for supremacy in a local-services industry primed for growth as more people turn to their smartphones or the Web to order food, schedule beauty treatments or hire domestic helpers. Users of those services could rise 29 percent to 400 million by next year, with sales expected to reach 7.28 trillion yuan ($1.1 trillion).

Chinese companies have been involved in $91.6 billion of acquisitions and investments in the Internet industry in the past 12 months, according to data compiled by Bloomberg.

Tencent fell 1.7 percent in Hong Kong to HK$133.10, its lowest in almost four months.

Alibaba, Baidu

The funding for Ele.me is another sign that venture-capital flow in China is resilient even with the nation’s economic slowdown and market turmoil. Meituan Dianping, created last year through a merger, just closed a $3.3 billion round that was the largest-ever single investment in a VC-backed company, according to London consultancy Preqin Ltd. Caixin previously reported Ele.me was in discussions with Alibaba to raise funds.

Venture capitalists poured a record $37 billion into China last year, though concerns grew in recent months that too many startups may have gotten funding in certain sectors. That led to money-losing battles waged with promotions and subsidies, and eventually spurred a series of mergers.

Alibaba and its financial affiliate, Zhejiang Ant Small & Micro Financial Services Group Co., formed a joint venture called Koubei, with each agreeing to invest 3 billion yuan to help the company expand into neighborhood services. Baidu, the nation’s biggest search company, said last year it would invest $3.2 billion over three years in its own provider of local services, called Nuomi.

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