Newspaper article International New York Times

Alibaba Cites Suspicious Accounting at Film Unit ; Disclosure May Put Spotlight on How Targets of Takeovers Are Vetted

Newspaper article International New York Times

Alibaba Cites Suspicious Accounting at Film Unit ; Disclosure May Put Spotlight on How Targets of Takeovers Are Vetted

Article excerpt

The disclosure may raise concerns about whether Alibaba has been carrying out sufficient due diligence in a recent spree of acquisitions.

Alibaba, the Chinese e-commerce giant, said on Friday that it had discovered suspicious accounting at a Hong Kong film company that it paid about $800 million just two months ago to control.

The disclosure may raise concerns that Alibaba, which is preparing what may be the biggest initial public offering in American history, could be biting off more than it can chew in a recent spree of acquisitions.

The film company, Alibaba Pictures Group, formerly ChinaVision Media Group, said on Friday that it had discovered "possible noncompliant accounting treatments" involving insufficient provision for impairments on assets, or write-downs, which were not identified. The company added that it would miss an Aug. 31 deadline to release its earnings for the first six months of the year and that its shares would be suspended from trading until its audit committee could complete a formal inquiry.

The accounting issues at Alibaba Pictures may lead to questions about whether Alibaba, which analysts expect could raise as much as $20 billion in a New York I.P.O. as early as next month, has been carrying out sufficient due diligence as it vets potential takeover targets. For example, a deal in June to pay nearly $200 million for a 50 percent stake in Guangzhou Evergrande F.C., a Chinese soccer team, was wrapped up in a matter of days after Alibaba's executive chairman, Jack Ma, agreed to the investment while having drinks with Evergrande's owner, a billionaire real estate developer.

Alibaba agreed in March to purchase a 60 percent stake in ChinaVision, which produces and distributes films and television programs in China, for 6.24 billion Hong Kong dollars, or $804 million at the time. The deal was completed in June. Alibaba renamed the company Alibaba Pictures and installed its own slate of directors. Last month, Alibaba Pictures issued a profit warning, saying that because of a drop in revenue, it expected to book a substantial loss in the first six months of this year, compared with a profit of $18 million in the same period in 2013. …

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