According to the equity subscription agreement, Tencent and JD.com will subscribe to Vipshop’s newly-issued A shares, which will be worth about US $604 million and US $259 million respectively. The subscription price is US $65.40 per share, equivalent to US $13.08 per share of Vipshop’s American depositary shares (one ADS is equal to 0.2 A share). The price premium is about 55 percent of ADS closing price on the last trading day of December 15, 2017.
The deal will be completed in the near future, sources said. When the transaction is completed, Tencent and JD.com will hold 7 percent and 5.5 percent of Vipshop’s shares respectively, including the shares held before (JD.com holds 2.5 percent of Vipshop’s share).
The A shares that Tencent and JD.com purchased are subject to a two-year lockup period. During the lock-up period, Tencent has the right to appoint a Vipshop board member, and JD.com can appoint one observer to the board. When lock-up period ends, as long as Tencent and JD.com still own 12 percent and 8 percent of Vipshop’s issued shares, or another proportion according to a mutual agreement with Vipshop, Tencent and JD.com can retain their rights to appoint a board member and observer.
After Tencent and JD.com’s joint equity investment, they will own a 12.5 percent stake in Vipshop, about the same proportion as the largest shareholder, Vipshop chairman and CEO Shen Ya. This has raised some speculation about whether Shen Ya may lose control of Vipshop.
Vipshop has said it will continue to operate independently and Shen will continue to maintain absolute control.
According Vipshop’s AB shares rules, Shen Ya owns B stock. One B stock equals to 10 votes. The stocks held by other shareholders except Shen Ya are A stock. One A share only equals to 1 vote. After the deal, Shen Ya remained the largest shareholder in Vipshop with nearly 60 percent of its voting rights, which is why said Vipshop said Shen could maintain control of the company.
In addition to the investmet, Tencent and JD.com have reached a strategic cooperation agreement with Vipshop. Tencent will provide Vipshop with WeChat wallet access and provide WeChat platform with flow cooperation. JD.com will provide an entrance to Vipshop on JD.com‘s home page, in the JD.com app and its WeChat mini program. JD.com will help Vipshop complete certain GMV sales target on JD.com platform.
On this collaboration, JD.com and Vipshop both highlight a key audience: female users. Vipshop co-founder, chairman and CEO Shen Ya said, “The tripartite partnership is significant for Vipshop and is also a big event for China’s e-commerce market and Internet industry. Vipshop will continue operating as an independent e-commerce platform to strengthen our leading position in fashion apparel and beauty makeup, and to target women users. We will provide customers with higher value and a better user experience.”
JD.com Group Chairman and CEO Richard Liu said, “The cooperation will further accelerate the pace of JD.com in the female consumer market, and will further expand the breadth and depth of our fashion business. We will make sure to provide users with a comprehensive shopping selection and the best shopping experience by constantly working to make out top partners complement each other.”
Rumor once said JD.com would merge with or acquire Vipshop. The speculation was because of their complementary customer bases.
JD.com, which started with 3C appliances, has spent the past six years improving the gender structure so as to attract more female users with a whole-product strategy – especially in its online supermarket. Now, JD.com, which has finished the war for online supermarkets, has pushed into the clothing market and tried to attract more female users. Investment in VIPshop will undoubtedly help JD.com to leap a forward with its goal of “buying clothes on JD.com“.