English

(English) Alibaba and Mail.Ru complete JV deal to dominate Russian e-commerce

10 октября 2019

(English)

As Russian e-commerce is entering a new growth and concentration cycle, Alibaba, Mail.Ru Group, Russian telco MegaFon and sovereign fund Russian Direct Investment Fund (RDIF) today announced the completion of their e-commerce joint venture deal.

The JV will leverage on the existing businesses of AliExpress Russia, the B2C marketplace owned by Alibaba which controls the bulk of e-commerce flows between China and Russia. 

Keeping the name of ‘AliExpress Russia,’ the JV will operate in the domestic segment, too, as announced previoulsy. This will “create an unmatched value proposition for merchants, consumers and Internet users” across Russia and some other post-Soviet republics. 

Presenting the JV as “an important part of Alibaba’s globalization strategy,” Daniel Zhang, Executive Chairman and CEO of Alibaba Group said the JV will “enable regional brands and SMEs to reach and serve their target consumers through our unique and innovative shopping experience” — in line with Alibaba’ goal to “help 10 million small businesses reach profitability and serve 2 billion customers worldwide.”

Mail.ru Group CEO Boris Dobrodeev said this alliance aims to “build an undisputed leader in Russian e-commerce.” “Building an [unmatched level of] user services of e-commerce in Russia is only possible with very strong partners,” he added.

To reach such goals, the JV aims to leverage Mail.Ru Group’s leading positions in Russia’s social media (via the group’s properties VK and OK, whose audience far exceed that of Facebook in Russia), as well as online gaming (100 million registered users worldwide), email services (100 million user accounts) and online communications. 

MegaFon, on its side, is bringing a customer base of 77 million people.

VK and AliExpress began developing their social commerce project in early 2019, soon after their respective shareholders announced their JV project. Approval from the Russian antimonopoly authority was received in June 2019

Russian majority ownership

The shareholders’ contributions to the AliExpress Russia JV have been made as follows:

  • Alibaba Group has invested $100 million and contribute AliExpress Russia in the joint venture. It has received 55.7% of the economic rights in the joint venture, could see its stake reduced to 47.8% as the RDIF will exercise a $194 million call option;
  • MegaFon has sold its 9.97% economic stake in Mail.Ru Group to Alibaba Group in exchange for a 24.3% stake in the AliExpress Russia JV with 30.2% voting rights;
  • Mail.ru Group has contributed its Pandao e-commerce business as well as cash investments of $182 million in exchange for a 15% stake in JV with 18.7% voting rights;
  • The RDIF has invested $100 million in the JV and may further acquire additional shares of the JV from Alibaba Group for $194 million. Should it exercise this option, the sovereign fund will own economic and voting stakes in the joint venture of 12.9% and 9.6%, respectively.

Thus, the Russian shareholders have the majority of voting rights from the very beginning (50.1%) and will increase their weight to 52.4% if the RDIF exercises its option.

Share split in the AliExpress Russia JV. Source: Mail.ru Group

The new company’s board of directors includes representatives of the four shareholders with Boris Dobrodeev, CEO of Mail.Ru Group, appointed as chairman. Two co-CEOs will manage the joint ventures: AliExpress Russia Head Liu Wei and Mail.ru Group First Deputy CEO Dmitry Sergeev. 

Russian e-commerce on the rise

Russian e-commerce is entering a promising development cycle: although the size of this market reached just around $23 billion last year (taking into account only orders of physical goods), including some $5 billion for cross-border sales, this sector is growing by around 20% annually (see latest industry report by East-West Digital News).

In late 2018 Morgan Stanley predicted that market size could exceed $50 billion by 2023. Local market experts have diverging views on the matter: while the Russian E-Commerce Association tends to consider these predictions as inflated, Data Insight believes Russian e-commerce could develop even faster.  “Over the past year or two, the performance of many players, including both large and medium-sized sites, has been so impressive that forecasts may have to be revised upwards,” the research agency’s co-founder Boris Ovchinnikov told East-West Digital News.

The AliExpress Russia JV will have to compete with strong players on the domestic scene. Wildberries is, by far, the current market leader with nearly $1.8 billion in revenues generated last year. Ozon, one of the most established industry players, raised some $150 million from its existing shareholders earlier this year to support its ambitious development goals.

Meanwhile Yandex has partnered with Sberbank, the state-controlled financial giant, to create an e-commerce joint venture which already operates on both the domestic and cross-border segments. 

The game remains open, though, as time will put to test the robustness of these alliances and new players will continue entering the market. 

Источник
Новости по теме
Власти могут обязать банки и энергетические компании перейти на отечественное оборудование и софт
Закон об устойчивом Рунете не отразится на российских пользователях, уверен эксперт
Устойчивый Рунет уже здесь: как изменится жизнь россиян