Alibaba to Acquire Rest of UCWeb to Boost Mobile Offering

Alibaba Group Holding Ltd., China’s largest e-commerce operator, agreed to acquire the rest of UCWeb Inc. to add Internet browsers and an application store to its services for mobile devices.

The cash and stock deal will see 3,000 workers join Alibaba as the business is fully integrated, the companies said in a joint statement today, without specifying a price. Alibaba, which already had a 66 percent economic stake, said the valuation for UCWeb surpasses the $1.9 billion paid by Baidu Inc. for 91 Wireless last year as China’s biggest Internet deal.

Billionaire Jack Ma’s Alibaba and UCWeb are collaborating in areas such as payment, search and gaming services as competition intensifies in China, the biggest wireless market. UCWeb is boosting spending to challenge Tencent Holdings Ltd. and Baidu as China’s 618 million Internet users drive demand for games, apps and the platforms to deliver them.

“UCWeb has done great in its mobile browser business; it could work with Alibaba on developing mobile search engines going forward,” said You Na, an analyst at ICBC International Research Ltd. in Hong Kong. “UCWeb could also work with Alibaba’s mapping unit to provide location-based services.”

Billionaire Ma, executive chairman of Hangzhou-based Alibaba, joined UCWeb’s board in August. The 66 percent stake was held through convertible preferred shares, according to a filing in May.

Increased Spending

“UC is an important factor in China’s industry today,” Ma said in a letter to Alibaba employees today. “It has shown strength in international development and we believe the integration of UC and Alibaba will bring more change and imagination to the industry.”

Florence Shih, a spokeswoman for Alibaba, confirmed by e-mail that Alibaba is buying the rest of UCWeb. Ben Jiang, a Beijing-based spokesman for UCWeb, declined to comment on the pricing of the deal.

The integration marks an end to UCWeb’s original plans for an initial public offering. Then-Chief Executive Officer Yu Yongfu said in January he preferred the company went public in the U.S. Yu now will be president of the UCWeb unit, according to today’s statement.

UCWeb’s narrow product focus could have limited its valuation in an IPO, said ICBC’s You.

Alibaba last month filed for its own IPO and the company has been valued at $168 billion, according to analyst estimates.

Boosting Spending

UCWeb set up a joint venture with Alibaba to offer search services on mobile devices in April. The joint venture known as Shenma will also be integrated into Alibaba, according to Jiang.

UCWeb intends to boost spending by 67 percent to 5 billion yuan ($803 million) in the three years through 2015 to build products and expand overseas, Yu said in an interview in Beijing in May.

The Beijing-based company wants to reach 1 billion users in three years, with about half of them outside China, mostly by relying on its browser and search offerings, Yu said. UCWeb had more than 500 million mobile-browser users and about 50 million customers at its app store in May.

This year, UCWeb started offering its mobile game stores overseas, targeting Russia, Indonesia, India and Vietnam. China’s Internet users may exceed 850 million by next year, according to government data. That’s greater than the population of any other country except India.

UCWeb has been profitable since 2009, and revenue has doubled in each of the past three years, Yu said. Revenue also is expected to double this year, Yu said without elaborating.

The browser maker’s UC Application Store competes against Baidu’s 91 Wireless, while its UC 9game mobile gaming platform rivals a similar service operated by Tencent.

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