Alibaba's Youku Tudou Purchase Just The Latest In High Premium M&A Deals

• Alibaba Group Holding Ltd BABA has agreed to acquire Youku Tudou Inc (ADR) YOKU in an all-cash deal.
• Alibaba will pay Youku shareholders $27.60 per ADS, representing a 49.9 percent premium to the volume-weighted average closing price of Youku’s issue during the three months prior to October 15.
• M&A premiums have been rising since the beginning of 2015 from around 20 percent to a nearly 50 percent average.

Alibaba, China’s largest eCommerce platform, announced on Friday it has entered into an agreement to acquire Youku Tudou, a multi-screen entertainment and media company based in China, for $27.60 per American Depository Share (ADS).

Shares of Youku were higher by nearly 8 percent Friday morning and trading at $26.30 with an implied market cap of $5.13 billion.

Alibaba noted in its press release that the $27.60 per ADS offer represents a 35.1 percent premium over the closing price of Youku’s issue on October 15 – one day prior to its announcement that it has received a “going private” proposal from Alibaba.

The company added that its offer also represents a 49.9 percent premium to the volume-weighted average closing price of Youku’s ADS during the three months prior to October 15.

The board of directors of both companies approved the deal. Youku’s Chief Executive Officer, Victor Koo, said that the deal “maximizes value for Youku Tudou shareholders and significantly benefits our customers, users and team.”

Alibaba’s Purchase The Latest In High Premium M&A Deals

2015 has proven to be an exciting year for M&A activity with several high profiled deals, the largest of which (so far) consists of Royal Dutch Shell plc (ADR) RDS $81.5 billion acquisition of British energy supplier BG.

Alibaba’s acquisition certainly won’t rank among the largest of the year but it does illustrate the fact that companies are paying higher premiums to acquire companies and fuel growth.

The average premium paid by a company to acquire another company was nearly 20 percent to start off the year. The figure steadily grew to nearly 50 percent as of October. The highest recorded average premium paid by a company over the past five years was above 70 percent in January 2013.