Russian Alibaba merger with local partners and Megafon through joint venture?


RDIF, Alibaba Group, MegaFon and Group announced at the Eastern Economic Forum (EEF) the creation of a joint venture in the field of e-commerce, which will unite the strategic assets of the participants, as well as “new capital, management, resources and expertise”.

AliExpress Russia will include the assets of Alibaba Group in Russia, as well as cross-border operations of the group, in particular, the international trading platform AliExpress and the Russian B2C-platform Tmall.

According to several sources familiar with the terms of the framework agreement of the parties, RDIF and Alibaba will invest in a single holding structure through the purchase of its preferred shares, and the Fund will buy a part of ordinary shares from the Chinese company.

“MegaFon”, explained the head of RDIF Kirill Dmitriev, will give Alibaba Group in exchange for 24% stake in JV 10% of shares Group. Contribution of the group in the joint venture will be a marketplace for the sale of goods from China called Pandao, money, as well as services for the integration of AliExpress Russia with the ecosystem of the Internet company.

In the end, the distribution of shares would be: Alibaba Group — 48%, “Megafone” — 24%, Group — 15%, the RDIF FUND — 13%.

The joint venture will operate in all segments of e-commerce, including international and local. AliExpress Russia and the Group will conclude an agreement on strategic cooperation, which includes, among other things, the exchange of traffic and “product initiatives”.

The parties also discussed the possibility of joint investments of JV and Group into other businesses including FoodTech. Group includes the largest  service of food delivery in Russia called “Delivery Club”, classifides “Yula”, and online taxi aggregator “Citymobil”.

As a result of the deal AliExpress Russia will have access to the audience of Group in social networks, messengers, e-mail and online games (about 100 million people).

At the same time, the JV participants declare that the new company will support small and medium-sized businesses in Russia through access to the “ecosystem that allows local entrepreneurs to sell goods in their country and abroad.”

Alibaba platforms are used by more than 600 million consumers from China, Southeast Asia, Turkey, Europe, India and other countries, according to the message of partners.

The founder of USM (the controlling shareholder of MegaFon) Alisher Usmanov: “Partnership with the global leader in e-Commerce will be of great importance for the digital transformation of the Russian economy. Alliances between major players are becoming a trend in the e-Commerce market.

And given that this is a partnership with a Chinese company, I am confident in the great potential of the deal to strengthen Russian-Chinese business ties. In Russia, the e-Commerce market has a huge potential. In addition, Russian producers will have new opportunities to enter new markets.”

The deal between the Russian direct investment FUND, Alibaba Group, MegaFon and Group is the largest in the Russian e-commerce. In August 2017 Yandex and Sberbank announced its intention to create a joint venture on the basis of “Yandex.Market”: then the Bank pledged to invest 30 billion rubles in it, the partners estimated the total business at 60 billion rubles, the transaction was closed in April 2018.

Nontheless, based on capitalization of Group on the London stock exchange at $ 4.8 billion and the exchange of “MegaFon” 10% of the shares of the Internet company at 24% of the shares in the JV, the entire AliExpress Russia at the stage of creation can be estimated at almost $2 billion, that is twice as expensive.

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