By Donny Kwok and Matthew Miller
HONG KONG/BEIJING (Reuters) - Alibaba Group will invest HK$2.82 billion ($361 million) in appliance maker Haier Electronics Group Ltd in a deal aimed at expanding the Chinese e-commerce giant's logistics reach to the millions of consumers in China's vast interior.
Online retail is booming in China and market leader Alibaba is seeking to develop Haier's distribution network for large-sized goods into a logistics platform that will reach lesser developed cities and which other companies can also use.
For Haier, the partnership with China's biggest e-commerce firm will further its expansion into online retail and logistics, a strategy aimed at giving it an edge in the fierce battle for margins in the world's biggest appliance market.
Shares in Haier, in which KKR-backed Qingdao Haier Co Ltd owns a 47.8 percent stake, soared 20 percent to their highest in nearly 14 years after the deal was announced. The stock was up 12.8 percent in late trade on Monday, outpacing a 0.23 percent gain in the benchmark Hang Seng Index.
"This collaboration with Haier Group is a win-win-win partnership," Jack Ma, executive chairman of Alibaba Group, said in a joint statement. China's vast interior is expected to see rapid retail growth as more people move into urban areas and their spending power increases.
The agreement will see Alibaba acquiring a 9.9 percent stake in Haier's online marketplace Goodaymart, which under the joint venture, will form the basis of a logistics platform for large-sized goods that can be used by other companies as well.
Alibaba will also buy HK $1.316 billion worth of convertible bonds which can either be turned into shares in Hong Kong-listed Haier or a 24.1 percent stake in the joint venture. It will also subscribe to about 2 percent of Haier Electronics' enlarged share capital for HK$965 million, the statement said.
The funds are expected to be used to expand Haier's warehouse capacity, network development, and online-to-offline integration, it added.
"The logistics for large-size goods is the next nut for Alibaba to crack," said James Roy, senior analyst at Shanghai-based China Market Research Group.
"It is a very complicated and difficult sector to get a lot of control over it. Alibaba has put a lot of sweat into how to build that capability up."
MOVING THE REFRIGERATORS
The Alibaba-Haier deal is the latest of several acquisitions by the the Chinese e-commerce giant which says it is investing $16 billion in logistics and support by 2020 to open up China's vast interior and bring access to hundreds of millions of potential new customers.
China's estimated 1.7 trillion yuan ($286 billion) online retail, or e-tail, market will overtake the United States to become the world's biggest this year, said Bain & Co. The consultancy predicts Chinese e-tail growth of 32 percent each year to 2015, a pace over twice as fast as the United States.
Alibaba, which is preparing for a roughly $15 billion intial public offering, accounts for half of online retail sales in China through its Tmall online market. Its eBay-like Taobao marketplance also controls around 80 percent of consumer to consumer online sales, according to consultancy Euromontior.
"Haier Group can learn a great deal from Alibaba through this partnership, and I'm confident that this collaboration will create concrete benefits for all involved," Chairman Zhang Ruimin said in the joint statement.
"We believe that the outlook for the household appliances and large-sized goods market is very positive," Haier said in another statement. "While continuing to work with Haier Group, Goodaymart will also open up its platform to other operators."
Haier's Goodaymart online market has some 90 delivery centres, and a vast network capable of reaching counties, townships and villages.
In September, investment company KKR & Co LP said it had agreed to buy a 10-percent stake in Qingdao Haier, gaining exposure to China's home appliances market with its biggest investment in the country to date.
(Reporting by Donny Kwok and Matthew Miller; Additional reporting by Michael Flaherty; Editing by Jeremy Laurence and Miral Fahmy)