* Alibaba bought stake in Alibaba Pictures Group less than 2
* Alibaba Pictures says possible irregularities from before
* Speed of Alibaba's recent acquisitions raises investor
(Adds Deloitte comment)
By Elzio Barreto
HONG KONG, Aug 15 A media firm Alibaba Group
Holding Ltd recently bought said on Friday a review of its
finances revealed possible accounting irregularities, casting
doubts on the Chinese e-commerce giant's due diligence as it
prepares for a U.S. initial public offering.
The announcement by Alibaba Pictures Group Ltd
comes less than two months after Alibaba Group completed its
$804 million purchase of a 60 percent stake in the film and TV
production company once known as ChinaVision Media Group Ltd.
The deal was among the $10 billion or so Alibaba Group and
its affiliates have spent since the beginning of last year on
acquisitions which ventured beyond its traditional e-commerce
roots to fend off competition from rivals like Tencent Holdings
Ltd, Baidu Inc and JD.com.
But the speed at which the group has conducted some of its
purchases has raised investor concerns. In June, Alibaba bought
China's most successful football club, the Guangzhou Evergrande,
for $192 million in a deal which was hatched over a few drinks.
"They're under a lot of competition pressure, which led them
to make some of these deals, but I don't think a lot of them are
actually well thought out," said Tony Chu, a Hong Kong-based
portfolio manager at RS Investments.
"When you see the extent of the deals, there are so many of
them recently announced, that raises the question as to how much
due diligence the company has made on some of these deals," he
Alibaba Group, whose platforms handle more goods than EBay
Inc and Amazon.com Inc combined, is gearing up
for a U.S. IPO this year that bankers and investors expect to
surpass the $16 billion raised by Facebook Inc when it
listed in 2012.
In a statement, Alibaba Group said it supported the review
into Alibaba Pictures' finances. "The new management team has a
firm commitment to transparency, good corporate governance, and
investor protection," it said.
Deloitte Touche Tohmatsu was listed as the auditor of
ChinaVision since 2011, according to the company's 2013 annual
Deloitte said in an e-mailed statement that it could not
comment on clients because of confidentiality reasons.
Days after completing the deal, Alibaba Group appointed a
new board of directors for Alibaba Pictures and named Polo Shao,
Alibaba's chief risk officer, as chairman. Liu Chunning, a
former Tencent executive who heads Alibaba's digital
entertainment business, was also appointed acting CEO.
Goldman Sachs advised Alibaba on the investment in
Alibaba Pictures, while REORIENT Financial Markets Ltd advised
the target company.
In its filing to the stock exchange, Alibaba Pictures said
the possible "non-compliant treatment of financial information"
was before the Alibaba purchase.
It asked for its shares to be suspended until further
notice, and said it would delay reporting its interim results
while its audit committee completes an inquiry into the
"The company is not yet in a position to comment on the
potential impact on its current and historical financial affairs
of the matters described above," Alibaba Pictures said.
Last month, it also issued a profit warning.
Shares of Alibaba Pictures last traded at HK$1.61 before
they were halted on Friday. The stock has more than doubled
since late February, prior to the announcement of Alibaba
Before the Alibaba investment, the film and TV company
counted Sequoia Capital among its biggest shareholders as well
as Dong Ping, co-producer of the award-winning 2000 film
"Crouching Tiger, Hidden Dragon". Alibaba's rival Tencent also
owned a stake in Alibaba Pictures.
(Additional reporting by Paul Carsten and John Foley in
BEIJING; Editing by Miral Fahmy and Ryan Woo)