By midmorning, shares of the digital navigation firm had soared 24.9% to $20.65.
In a letter to the Beijing-based company, Alibaba director Joseph C. Tsai wrote, "The market for navigation and map applications and services has become increasingly challenging, as several larger, well-capitalized Internet players in China have become major competitors to the company.
"We believe that Alibaba is uniquely positioned to offer superior value to AutoNavi's shareholders based on our complementary, rather than competitive, business strategies and the potential synergies we can achieve from a full combination."
Alibaba proposed to acquire all American depositary shares and ordinary shares it does not already own for US$21 in cash per American Depositary share, or $5.25 per ordinary share. Alibaba currently owns 28% of the company's issued and outstanding shares.
The offer values AutoNavi at approximately $1.45 billion and represents a 27% premium to Friday's close of $16.54.
AutoNavi's board will form a committee of independent directors, such as a financial advisor and legal counsel, to review the transaction.
Much like Google (GOOG), Alibaba has been diversifying its brand portfolio. It currently owns online marketplaces Taobao and Alibaba.com and e-payment platform Alipay. In April last year, the company purchased a stake in Sina Corp's (SINA) Weibo, a Twitter-like microblogging site.