Updated from October 16 to reflect that the deal went through.
NEW YORK (TheStreet) -- Alibaba (BABA) - Get Report announced that its bid to take over full control of Youku Tudou (YOKU) , a YouTube-like video streaming service in China, has gotten the green light.
Alibaba initially invested in Youku in May of last year, taking a $1.22 billion stake in the company, which translates to 18.3% ownership. Alibaba is now buying the rest of the company as well, at $27.60 per share, an increase from Alibaba's initial bid in October of $26.60 per share, or $3.6 billion total. The new offer values the entire company at $4.4 billion, up from $4.2 billion in the initial offer.
The deal is expected to close in the first quarter of 2016.
Alibaba plans to boost the current partnership between the video streaming platform and its e-commerce platform. Alibaba is already testing a way for consumers who are watching a show on Youku to be able to purchase a product from that show on Alibaba at the same time. There are also other advertising and marketing opportunities for the two companies to work on together, advancing Alibaba's marketing capabilities through its Alimama services.
"The acquisition makes strategic sense as Alibaba is building out its media capabilities in order to entrench deeper with the consumer, especially on mobile," Wedbush analyst Gil Luria said. "The company has a 'multi-screen' strategy where it is trying to keep consumers engaged and shopping on mobile, PC and TV, and Youku will help with that strategy."
Nonetheless, the deal may be cause for some investor concern, according to Luria. "It appears that Youku is not profitable, so in spite of Alibaba using cash on hand, the acquisition may be slightly dilutive," he said. "Also, the fact that Alibaba is using half of its net cash to buy a growth company may be another indication of slowing growth in their core business."
Apart from those financial issues, Youku certainly adds a lot of opportunity for Alibaba. Youku has more than 500 million unique viewers, and Alibaba attracts 367 million annual active buyers. The power of the two audiences combined will allow Alibaba to connect with an even larger user base.
"We believe that the proposed transaction, with tighter integration of our resources, will help Youku achieve exciting growth in the years ahead by leveraging Alibaba's assets in living-room entertainment, e-commerce, advertising and data analytics," Alibaba CEO Daniel Zhang said in a statement. "Digital products, especially video, are just as important as physical goods in e-commerce, and Youku's high-quality video content will be a core component of Alibaba's digital product offering in the future."
This proposal is not Alibaba's first sign of interest in video and digital content.
In June, Alibaba announced that it would be releasing Tmall Box Office, an online streaming service akin to Netflix (NFLX) - Get Report . In 2014, Alibaba bought a large stake in the movie production company ChinaVision Media, renaming it Alibaba Pictures. In 2013, Alibaba began selling its own set-top box.
All of these moves signal a growing interest from Alibaba in dominating the Chinese online video space, which is currently dominated by Tencent and Baidu.
"As we originally highlighted in our IPO prospectus, digital entertainment is core to our strategy of promoting consumption of goods and services," Alibaba's executive vice chairman Joe Tsai said in a conference call Friday morning. "The difference between digital content consumption and online shopping is that virtual goods and services do not require logistics."