Alibaba-Groupon M&A Chatter? Market Could Be Overreacting, Source Says

Groupon Inc GRPN shares were up over 6 percent on the first day of this week, riding the continued wave from Alibaba Group Holding Ltd BABA's disclosure of a 5.6 percent stake on February 12, along with strong earnings.

The stock is up almost 80 percent over this time, on apparent hopes that the Chinese e-commerce giant is considering an outright buyout of the Chicago-based deals company. While both Alibaba and Groupon have confirmed to Benzinga the stake is currently passive at this time, journalists have speculated on the logic behind a deeper relationship.

A report last week from Youngchinabiz suggested Alibaba's stake in Groupon was a test for an expanded relationship or a total takeover. “Alibaba is likely to enter talks to buy a strategic stake in Groupon or even make a bid for the entire company, following its disclosure," the outlet wrote last Friday.

Shares rose almost 15 percent on the back of this thesis.

The author also pointed out the logic of an Alibaba-Groupon combination, explaining that Alibaba's decision to unload its position in Chinese deal site Meituan-Dianping could leave it at a disadvantage to rivals Tencent and Baidu.

Source: Market Is Overreacting To Speculation

While a second unconfirmed report from Canada's Proactive Investors reiterated Alibaba-Groupon takeover speculation on Monday that stoked investor confidence, it's possible the market is overreacting, at least according to one source close to one of the companies.

A source familiar with the matter told Benzinga that investors shouldn't rush to conclusions about Alibaba's Groupon stake. The company takes minority positions in a large number of other companies without plans to take over a majority stake down the road, the person added.

Outright buyouts such as the Youku Tudou offer are few and far between for Alibaba, and the Groupon stake could simply be a matter of Alibaba seeking to learn more about the way that the company operates as Alibaba continues its Online-to-Offline (O2O) push.

Alibaba has repeatedly emphasized the importance of O2O in the future growth of all major Chinese e-commerce companies, the source said.

In a note on Tuesday morning, Wedbush analyst Aaron Turner reiterated the idea that the market may be overreacting. "We believe current valuation prices in a possible acquisition by Alibaba, an outcome we believe is unlikely given Alibaba's history of U.S. investment," he wrote.

Groupon shares were trading at $4.25 on Tuesday afternoon. The stock traded near $3.00 at the beginning of 2016.

Brent Slava and Jake Mann contributed to this report.