JD.com Inc. and Tencent Holdings Ltd. will invest a total of about $863 million in Chinese online discount retailer Vipshop Holdings Ltd. through a share subscription, with the trio also forming a strategic alliance to expand their e-commerce presence, according to a Dec. 17 joint announcement.
Under the agreement, JD will spend $259 million to subscribe for newly issued class A ordinary shares of Vipshop to give it a 5.5% stake in the company, while Tencent will invest $604 million for a 7% stake in the retailer.
The purchase price will be $65.40 per class A ordinary share, which is equivalent to $13.08 per American depositary share of Vipshop. Five of the company's ADSs represent 1 class A ordinary share. The price represents a 55% premium over the ADS closing price as of the last trading day of Dec. 15.
The class A ordinary shares issued to the two Chinese companies will be locked up for two years, during which time Tencent can name a director and JD can appoint an observer to Vipshop's board. Following the lock-up period, they will maintain director and board observer rights for so long as Tencent holds about 12% and JD around 8% of Vipshop's total issued shares.
The transaction is expected to close "in the near future" and is subject to customary closing conditions.
Upon closing, Tencent, JD and Vipshop will establish a cooperative relationship. Tech company Tencent will give Vipshop an entry on the interface of its online payment tool Weixin Wallet, which will allow the online retailer to draw customers from the Weixin social platform.
"We already see substantial demand from our users to discover, discuss and purchase branded apparel in our applications, and we believe that connecting our users more deeply to products on Vipshop's platform will enrich their online experiences while benefiting Vipshop," Tencent President Martin Lau said.
Meanwhile, JD will allow Vipshop to appear on the main page of its mobile app as well as the main page of its Weixin Discovery shopping display. It will also help Vipshop achieve "certain" gross merchandise volume targets through the JD.com platform.
Vipshop will continue to operate as an independent e-commerce platform focusing on the fashion and cosmetics segments, according to Co-founder and CEO Eric Shen. "We will explore win-win opportunities in multiple areas with JD.com, including establishing a strategic alliance in collaboration with brand suppliers and an online traffic alliance," he said.
JD CEO Richard Liu said the partnership is expected to further extend the company's reach to female shoppers and also expand the range of its fashion business.
The Chinese e-commerce giant has been seeking a turnaround in its apparel business, which saw stagnant growth for several quarters and remains small in scale compared to that of rival Alibaba Group Holding Ltd.