Vipshop Holdings Ltd – ADR (NYSE: VIPS) is having an overwhelmingly strong start to the trading session this morning, and for good reason. The company announced that it has entered into definitive agreements with two of China’s largest retailers. Today, we’ll talk about the agreements, what we’re seeing from the stock as a result, and what we’ll be watching for with regard to VIPS ahead.
VIPS Announces Agreements
As mentioned above, Vipshop Holdings is having an incredibly strong start to the trading session this morning after the company announced that it has entered into definitive agreements with Tencent Holdings Limited and JD.com, two of China’s largest retailers. Under the terms of the agreement, VIPS will be receiving an aggregate investment amount of approximately $863 million.
According to the terms of the agreement, Tencent and JD.com will be receiving newly issued Class A ordinary shares of VIPS in the amount of approximately $604 million and $259 million, respectively. The purchase price comes to a total of $65.40 per Class A ordinary share, representative of a 55% premium over the losing price as of December 15, 2017.
While the closing date of the transaction was not disclosed, it is expected to close in the near future, considering the satisfaction of customary closing conditions. Once the deal is closed, Tencent and JD.com will beneficially own approximately 7% and 5.5% of VIPS outstanding shares, respectively. In a statement, Eric Ya Shen, Co-Founder, Chairman, and CEO of VIPS, had the following to offer:
“I am truly delighted about Vipshop’s new strategic cooperation relationships with Tencent and JD.com… This undoubtedly is an important event for Vipshop as well as China’s e-commerce and internet industries. We, together with Tencent and JD.com, will leverage our respective strengths to form a strategic cooperative alliance aiming to achieve a deep, win-win cooperation and to benefit internet users and consumers. We will develop a holistic corporation with Tencent on the Weixin platform and expand our strategic alliance with Tencent into more and broader areas. We will explore win-win opportunities in multiple areas with JD.com, including establishing a strategic alliance in collaboration with brand suppliers, and an on-line traffic alliance. We will continue to operate as an independent e-commerce platform and further deepen and enhance our leading e-commerce capabilities in fashion (including apparel, shoes, bags, and accessories) and cosmetics categories as well as our strong female user base, thereby offering higher value and better user experience to our customers.”
The above statement was followed up by Richard Liu, Chairman and CEO at JD.com. Here’s what Liu had to offer:
“The strength of Vipshop’s flash sale and apparel businesses, as well as its outstanding management team, create clear and strong synergies with us… This partnership will further extend our strong inroads that we have made with female shoppers, and will expand the breadth and reach of our fashion business. We continue to add the top-notch partners to complement JD.com’s core strengths, ensuring that JD and our partners provide the best customer experience for every shopping need.”
What We’re Seeing From The Stock
As investors, we know that the news moves the market. So, considering the overwhelmingly positive news released today, it only makes sense that VIPS is running for the top. Of course, our partners at Trade Ideas were the first to alert us to the gains. Currently (10:53), VIPS is trading at $12.22 per share after a gain of $3.78 per share (44.79%) thus far today.
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on VIPS. In particular, we’re interested in following the story surrounding the company’s newly forged partnerships with Tencent and JD.com, as they will likely lead to strong growth ahead. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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