Date
22 January 2017
Jack Ma has promised to keep the editorial independence of SCMP but the paper is likely to run more stories promoting China, Alibaba and other mainland companies. Photos: HKEJ, Xinhua
Jack Ma has promised to keep the editorial independence of SCMP but the paper is likely to run more stories promoting China, Alibaba and other mainland companies. Photos: HKEJ, Xinhua

Why Alibaba’s acquisition of SCMP is a calculated move

Jack Ma, founder of the Alibaba Group, listed Alibaba.com (01688.HK) in Hong Kong in late 2007 and privatized it at the original price in early 2012.

Three years later, the e-commerce flagship is in the media publishing business thanks to Alibaba’s acquisition of the media assets of SCMP Group (00583.HK).

The sale includes Hong Kong’s biggest English-language newspaper.

It’s a well calculated move by Alibaba.

Not only does it land the South China Morning Post and Sunday Morning Post, the deal also puts a range of magazine titles in Ma’s stable.

Then there are other assets such as recruitment, outdoor media, events and conferences, education and digital media scmp.com and related mobile apps, as well as Chinese websites Nanzao.com and Nanzaozhinan.com.

The acquisition also includes a portfolio of magazine titles including HK Magazine and the Hong Kong editions of Esquire, Elle, Cosmopolitan, The PEAK and Harper’s BAZAAR.

Alibaba agreed to pay HK$2.06 billion (US$265.7 million) for the deal.

The move might surprise some investors.

Alibaba gave up Hong Kong in favor of New York for its market debut, raising a record US$25 billion in September last year.

The company has the financial capability to acquire the whole SCMP, so why is it buying only the media assets?

The biggest shareholder of SCMP Group, Robert Kuok and his family, refused to offload other assets.

The investment property interests of the SCMP Group includes a Clearwater Bay residential project, two floors at Bank of America Tower, two industrial units in North Point and Yau Tong and the Leighton Road offices of the paper. 

SCMP Group plans to re-organize the company whole holding the current investment property interests.

The group could become even more valuable as a property stock which would benefit shareholders.

SCMP is expected to record a gain of about HK$1.43 billion.

The board is planning to pay a special cash dividend, reportedly a substantial proportion of net proceeds from the sale.

Kerry Media Ltd., the major shareholder of the SCMP, is likely to make more than HK$1 billion from the spin-off. It holds nearly 74 percent of the company.

The second largest shareholder has a stake of about 14 percent, making the public float just another 25 percent.

The stock has been suspended for more than two and a half years for insufficient tradable shares.

Instead of acquiring a suspended company, Alibaba cherry-picked its way around the company.

Acquiring certain assets has some benefits compared with outright purchase.

The former does not involve amortization of goodwill.

Also, if the target asset is in the mainland, the issue of deferred tax can be avoided.

Hong Kong is a vital window for China to the world, so Ma could beef up his political influence by acquiring a reputable newspaper.

Although Alibaba promised to preserve its editorial independence, the newspaper is likely to run more stories promoting China, Alibaba and other mainland companies.

This article appeared in the Hong Kong Economic Journal on Dec. 21.

Translation by Julie Zhu

[Chinese version中文版]

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JZ/DY/RA

Columnist at the Hong Kong Economic Journal

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