Alibaba Group Holding will acquire control of Cainiao a delivery business that is unprofitable for 5.3 billion yuan or $800 million. It will spend billions more to expand its shipping network across the largest online market.
The largest marketplace online in China agreed to boost its stake to 51% in Cainiao Smart Logistics Network.
In this deal, Alibaba is planning to consolidate the financials of Cainiao into its books, which will erode the bottom line of Alibaba, and will receive another seat on the board of Cainiao, taking representation it has from three to four members of the seven on the board, said company officials on Tuesday.
The company who Jack Ma co-founded will take control of a rapidly growing, yet little known business that is run by partners that are in the heart of the expansion of Alibaba both within China as well as abroad.
It oversees a group of more than a dozen shipping partners, organizing and carrying out deliveries by over 2 million people in over 600 cities.
The operation of Cainiao allowed Alibaba to maintain a model that is asset-light that did not call for expensive construction of warehouses.
Now that control is being taken by Alibaba, it is planning to spend 100 billion yuan during a five-year period to further grow the network.
That will help address questions by U.S. regulators about the reason why Cainiao was not included previously in Alibaba’s financials even though it owned 47% of the company.
However, it will also take Alibaba much further into the business of establishing and controlling its infrastructure much the way Amazon.com does.
During the 2016 calendar year, Cainiao booked a 2.2 billion yuan net loss, which tripled from that of 2015. However, revenue tripled as well to over 9.5 billion yuan.
Alibaba with Intime Retail Group, the chain of department stores created Cainiao along with Fosun International the industrial conglomerate. The three led the first investment of 100 billion yuan into Cainiao to build its logistics network.
Since then company has managed a somewhat delicate relationship with delivery partners, as players jockeyed for business and valuable data of users.
This year, Wang Wei’s SF Holding accused Cainiao of taking out the company as an option for shipping and blocking its access to very vital data.
However, Cainiao replied to those accusations quickly by saying SF walled off information needed to get shipments to customers.