(Bloomberg)—Alibaba Group Holding Ltd. is setting up a $2 billion joint venture with billionaire Alisher Usmanov’s internet services firm Mail.ru Group Ltd. to strengthen the Chinese company’s foothold in Russian e-commerce.
Asia’s most valuable company signed an accord Tuesday with Mail.ru to merge their online marketplaces in the nation of more than 140 million people. The deal is backed by the Kremlin through the Russian Direct Investment Fund and the local investors will collectively control the new business.
The combined company will be better able to compete with local rivals Wildberries and Yandex. Alibaba’s Russian unit AliExpress mostly sells goods imported from China and hasn’t had to worry about competition from Amazon.com Inc. because the U.S. behemoth has little presence in the country.
“A big part of what we’ve been able to develop so far in Russia has been our cross-border business,” Alibaba President Mike Evans told reporters. “But the future, which will require the presence of our partners at this table, will involve building a much bigger local business.”
Alibaba will fold its Russian operations including AliExpress and Tmall into the venture, while Usmanov’s MegaFon PJSC will sell its 10% stake in Mail.ru—worth roughly $486 million at Monday’s close—to Alibaba in return for 24% of the business. That deal values the new outfit at roughly $2 billion.
Mail.ru will bring its mobile marketplace for Chinese goods, Pandao, into the new company, which will also get direct access to users of two popular Russian social networks owned by Mail.ru.
The Russian Direct Investment Fund will add an unspecified amount of funding in return for a 13% stake, while Mail.ru will hold the remaining 15%.
“Mail.ru has been able to use its strategic and financial fire-power to disrupt the market over a fairly short period and end up with a stake in Russia’s leading e-commerce platform,” David Ferguson, analyst at Renaissance Capital said in a note.
The parties inked the deal at a Vladivostok economic forum attended by President Vladimir Putin and Alibaba Chairman Jack Ma. The Chinese company had been negotiating a similar deal with Sberbank PJSC, Russia’s largest bank, but abandoned talks after the lender partnered with Yandex NV instead. Alibaba recently rolled out Tmall for Russia after winning consumers through AliExpress.
Ma, who started Alibaba.com in 1999 as a business-to-business marketplace with 17 co-founders, this week announced plans to step back from the Chinese e-commerce titan. His company, which is pushing into overseas markets from Southeast Asia to Russia, last year saw daily package deliveries reach 55 million.
Alibaba owns and operates Taobao and Tmall, which hold the No. 1 and No. 2 spots on the Internet Retailer 2018 Online Marketplaces.