Bottom line: Groupon's (NASDAQ:GRPN) new tie-up with Comcast (NASDAQ:CMCSA) shows it's more interested in working with a well-known US-based company than the unfamiliar Alibaba (NYSE:BABA), which could force Alibaba to quietly dump its Groupon stake by the end of this year.
It seems e-commerce giant Alibaba isn't the only company interested in money-losing group buying site Groupon. Less than 2 months after Alibaba disclosed it had purchased 5 percent of Groupon shares, apparently in the open market, a firm backed by US cable giant Comcast has just announced plans for its own strategic tie-up with the faded group buying site.
This new move certainly seems to throw some doubt on my previous prediction that Alibaba's purchase could presage a boosting of its stake in Groupon, or perhaps even an outright buyout bid. While such a move is still possible, Groupon does seem to be signaling that it intends to remain independent. It also seems to be indicating it prefers this more direct approach to forming new partnerships, rather than Alibaba's approach that looks a bit stealthier since it appeared to buy its Groupon shares without the company's consent.
Alibaba's earlier move always looked a bit strange, since it's relatively uncommon for one company to acquire a strategic stake of another by purchasing shares in the open market. Such a move would normally look hostile, since such stake acquisitions occur without consent of the company whose shares are being purchased.
By comparison, this latest deal between Groupon and Comcast-backed Atairos was announced by Groupon itself, and was clearly the result of talks between both companies. Under the deal, Atairos will invest $250 million to buy Groupon-issued bonds, which it can convert to stock by 2022 at a price of $5.40 per share. (company announcement; English article; Chinese article)
That price represents a 38 percent premium over Groupon's last close before the announcement. Groupon shares rallied 9.5 percent after the latest announcement, and are now nearly double the levels they were at when Alibaba first disclosed its purchase in a regulatory filing in February. Based on my own calculations, the deal would give Comcast nearly 8 percent of Groupon's stock if it decides to convert the shares later.
Groupon and Atairos were quite explicit in saying the investment was part of a broader tie-up that would see the pair explore potential partnerships. In this case, there certainly does seem to be lots of space for tie-ups. That's because Groupon works closely with many US retailers to sell their goods to US consumers. Comcast also has a close relationship with many of those same consumers through its position as a leading provider of cable TV and other on-demand services into people's homes.
By comparison, it was never really clear what kinds of tie-ups Groupon might be able to forge with Alibaba, which operates several hugely popular e-commerce platforms in China. It's possible Groupon could have offered some of its products to Alibaba's China users, though logistics of international shipping would have made that kind cooperation difficult and not very lucrative.
This particular development also seems to show that western companies probably feel more comfortable working with partners from their home markets, rather than strangers like Alibaba that have lots of money but are far less adept at forming such partnerships. Such dynamics were at play over the last month when hotel operator Starwood (HOT) chose to be purchased by larger US rival Marriott (NYSE:MAR) despite getting a higher offer from unfamiliar Chinese insurance giant Anbang (previous post).
Alibaba said when it disclosed its Groupon acquisition that it wanted to enter talks to explore possible partnerships, though it's unclear if any talks have occurred since then. It's certainly not impossible to have 2 or more strategic partners, and there's nothing to stop Groupon from pursuing a separate tie-up with Alibaba. But this latest move appears to show that Groupon is more interested in working with more familiar partners like Comcast, and I wouldn't be surprised to see Alibaba quietly abandon its Groupon pursuit and sell its stake in the company by the end of this year.