* Alibaba offers to pay $26.60 per ADS
* Alibaba already owns 18 pct of Youku Tudou
* Deal would extend push into online video
* Youku Tudou shares trading at $24.95 (Adds CFO, analyst comment, updates share price)
By Abhirup Roy and John Ruwitch
Oct 16 (Reuters) - Alibaba Group Holding Ltd offered to pay $3.5 billion to become the sole owner of Youku Tudou Inc, known as China’s YouTube, in a move that would give the e-commerce giant access to more than half a billion online video users.
The offer, a vote of confidence in China’s economy from Alibaba Chairman Jack Ma, makes Youku Tudou the latest in a string of U.S.-listed Chinese companies being taken private by big shareholders.
“Alibaba needs traffic. Online or mobile video is the number one place for that,” said Tian Hou, an analyst at TH Capital in New York.
Alibaba first bought into Youku Tudou in mid-2014, acquiring a stake of about 18 percent as part of a push into online video.
Alibaba’s offer for Youku Tudou values the 82 percent of the company it does not own at $4.6 billion.
But it will end up paying $3.5 billion, taking into account the $1.1 billion of cash on Youku Tudou’s books, Alibaba’s chief financial officer, Maggie Wu, said on a call on Friday.
Youku Tudou said the all-cash offer already had the support of its chairman and chief executive, Victor Koo.
Koo, a Bain & Co alumnus who holds an MBA from Stanford University, owns about 18 percent of Youku Tudou, according to a securities filing.
Though Youku has never turned a profit, its more than 500 million monthly users provide an enormous platform for Alibaba’s ambitions to sell online film and television and poses a potential threat to Netflix Inc’s plans for China.
Alibaba’s move comes as Netflix is looking to expand aggressively overseas as opportunities to grow become scarcer in its home market. Youku Tudou’s subscription service already offers Hollywood and Chinese-made movies.
“For Netflix, I think people already thought that China was going to be a challenge,” Atlantic Equities analyst James Cordwell said. “This just serves as a helpful reminder.”
Alibaba’s offer comes at a 30 percent premium to Youku Tudou’s closing price on Thursday, valuing the company at about $5.2 billion, based on 194.47 million shares outstanding as of June 30.
“Digital products, especially video, are just as important as physical goods in e-commerce,” Alibaba Chief Executive Daniel Zhang said. “Youku’s high-quality video content will be a core component of Alibaba’s digital product offering in the future.”
Youku Tudou is one of about 30 U.S.-listed Chinese companies to have received an offer to go private this year, according to Hong Kong research firm MCM Partners, many in the belief that higher valuations are available back home.
In the biggest proposed deal, a consortium offered to buy security software maker Qihoo 360 Technology Co Ltd for about $10 billion in June.
Youku Tudou’s New York-listed stock was up 22 percent at $24.95, below the offer price of $26.60 per American Depositary Share.
Alibaba, shares of which were up 0.2 percent at $71.91, said it would fund the offer with cash on hand.
Reporting by Abhirup Roy in Bengaluru and John Ruwitch in Shanghai; Additional reporting by Ismail Shakil; Editing by Robin Paxton and Ted Kerr