Alibaba Takes Control of Struggling Film Unit

E-commerce giant Alibaba Group Holding Ltd. said on Monday it would boost its stake to a majority of its separately-listed filmed entertainment division, as it attempts to turn around the money-losing unit four years after investing in the company.

According to its announcement released on Monday before markets opened, Alibaba will boost its stake by buying 1 billion new shares of Alibaba Pictures Group Ltd. for a total of HK$1.25 billion ($160 million). Those shares will boost Alibaba’s stake in Alibaba Pictures to between 50.63% and 50.92%, depending on whether additional share options are exercised.

The subscription price of HK$1.25 per new share represents a slight premium to Alibaba Pictures’ closing price of HK$1.23 on Friday before the announcement. Alibaba Pictures will call a special meeting to ask its shareholders to approve the deal. Those shareholders welcomed the development by bidding up Alibaba Pictures’ stock by about 5% on Monday.

“As Alibaba Group strives to strategically unify its digital media and entertainment holdings and pursue stronger synergies, the subscription will further strengthen the collaboration between the company and Alibaba Group’s other media content and distribution businesses … to deliver better user experiences for audiences in (China),” the statement said. “It is also a vote of confidence, backing the company’s ability to tap into the promising growth prospects of the (China’s) film industry by leveraging Alibaba Group’s edge in big data and e-commerce.”

The move should allow Alibaba to take control of the board of Alibaba Pictures, which has struggled since the pair first came together in 2014. Following the move, Alibaba Group will also be required to consolidate Alibaba Pictures’ financial results with its own.

Alibaba Pictures was formerly known as ChinaVision when Alibaba announced it would buy 60% of the Hong Kong-listed company for about $800 million in 2014. The stock, which was worth less than HK$0.5 at the time, soared to more than HK$4 shortly after the deal’s announcement. But since then it has given back most of those gains mostly due to weak financial performance.

Just months after the purchase, Alibaba announced it had discovered unspecified financial irregularities in the newly renamed Alibaba Pictures. The company’s financial reports have also been weak, including its latest report that showed it posted an operating loss of 423 million yuan ($61 million) for the six months through Sept. 30, roughly the same as a year earlier, even as its revenue rose nearly 30% to 1.5 billion yuan over the same period.

The move also comes less than a week after Alibaba announced that Alibaba Pictures’ Chairman and CEO Fan Luyuan would take on the second role as president of Youku, another Alibaba-owned unit that is also one of China’s leading online video sites. Alibaba announced that move after confirming that Youku’s “ex-president” Yang Weidong, was “assisting mainland authorities with an investigation into an alleged case of seeking economic benefits,” using a phrase that is often used as a euphemism for corruption.

Contact reporter Yang Ge (geyang@caixin.com)