Alibaba is back in the lottery business. Last year, the e-commerce giant’s lucrative lottery business was suspended due to government’s restrictions. Now the Hangzhou-based company has reached a deal to buy controlling stake in Hong Kong-listed AGTech Holdings for $308 million. The transaction will take place through Ali Fortune Investment Holding Ltd, which is 60% owned by Alibaba and 40% by its financial services affiliate Ant Financial.
The deal will help Alibaba tap into China’s rapidly-growing lottery business. Ali Fortune will buy HK$712.6 million of convertible bonds and HK$1.68 billion of shares in AGTech. According to AGTech’s filing with the Hong Kong stock exchange, Ali Fortune will hold 59.45% equity after full conversion. The e-commerce giant acquired AGTech shares at highly discounted prices.
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Alibaba and its financial affiliate subscribed to the lottery company’s shares at HK$0.35 apiece, which represents an 82.5% discount over its last closing price of HK$1.99 per share on March 4. Following the transaction, the Jack Ma-led company will have the right to appoint five non-executive directors to the nine-member board of AGTech Holdings. It marks the return of China’s largest online retailer to the lottery business.
Alibaba to help AGTech expand aggressively
AGTech runs lotteries in 80% of China’s provinces. It is engaged in lottery management, online and mobile lottery, gaming software, systems, hardware and terminals. AGTech has a team of more than 200 professionals. China’s lottery business holds huge growth potential, even though it is strictly regulated by the government. In 2013, the country’s lottery business had a participation of just 7.5% compared to 56% in Hong Kong and 57% in the United States.
Alibaba and its financial affiliate will potentially leverage their e-commerce channels, mobile payment methods, cloud computing and other platforms to help AGTech expand aggressively. The Hangzhou-based company is diversifying its businesses to reduce its excessive reliance on e-commerce. Investors fear that China’s slowing economic growth will affect consumer spending in the country, which may have a direct impact on Alibaba’s sales.