emaar vs amazon battle royal for souq and future of ecommerce
Last Updated : GMT 05:21:58
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Last Updated : GMT 05:21:58
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Emaar vs. Amazon: Battle royal for Souq and future of e-commerce

Arab Today, arab today

emaar vs amazon battle royal for souq and future of ecommerce

Frank Kane

There is a good old-fashioned bid battle going on in the Arabian Gulf, and the way it turns out will set the stage for the future development of e-commerce in the region.

Emaar Malls, the separately-listed retail and leisure arm of the Emaar property empire built up by UAE entrepreneur Mohamed Alabbar, has reportedly offered $800 million — of which $500 million is in good hard cash — to acquire Souq.com, the region’s homegrown e-commerce venture with ambitions to be the first “unicorn” or billion-dollar startup.

Emaar’s intervention upped the stakes in a tussle that has been going on for some months. It threatened to derail an agreed sale by Souq’s founders and shareholders to Amazon, the global market leader in e-commerce fulfillment and many other sectors of digital trade. That deal was believed to have been worth somewhere between $580 million and $650 million.

It is hard to pin down an exact value because none of the parties involved is talking officially about the terms.

But “sources familiar with the situation” are adamant that the Emaar bid is real, and offers a tempting premium for Souq’s backers. Even if they had previously signed up exclusively to the Amazon deal, they would have to reconsider in the light of the new bid.

A real unicorn?

This is great news for Souq and its shareholders, which include the US investor Tiger Global. There is nothing a vendor likes more than a competitive auction, which is guaranteed to maximize value. Souq was previously reported to have pulled out of a deal with Amazon because it failed to reach its own estimates of the company’s worth.

This was as high as $1 billion, according to the terms of its latest funding round, which raised $275 million in 2015, sparking the “unicorn” comparisons. Amazon’s reported lower bid apparently caused the deal to stall in January.

You could say that Souq — which is being advised by Goldman Sachs — has played a pretty shrewd game. It obviously felt undervalued in the January negotiations, so let the speculation cool for a while. When it got out that a deal was being done at a lower price, it left plenty of room for a rival bidder to come in.

Noon plus Souq equals fair fight

It makes sense for Alabbar to do so. He runs the biggest shopping center in the region — the gigantic Dubai Mall — as well as several others. He too is bitten by the e-commerce bug, with advanced plans for the launch of Noon, slated as a $1 billion portal that will have a big initial focus on fashion and luxury products, but which will ultimately offer the full e-commerce range. Noon is backed by Saudi Arabia’s Public Investment Fund, the group singled out as a leader of the Kingdom’s strategy of economic diversification.

Noon versus Souq was one thing; Noon versus Amazon is another, quite different proposition. Alabbar would not like to come up against the US giant so early in his venture’s existence. If he can head off that proposition, his plans stand a much better chance of success. Noon plus Souq versus Amazon is a fair fight.

The fortunes of other big corporates in the Middle East are also involved in the Souq auction. Aramex, the courier business that can claim to be one of the region’s few international brands, counts Alabbar as an investor and could be expected to benefit from lucrative fulfillment contracts from Noon. All the more so if Souq were part of the package too.

Majid Al-Futtaim (MAF), the UAE-based malls operator, was also intensely interested in the outcome of the Souq sale at the beginning of the year, to the extent that it was also mentioned as a possible bidder. CEO Alain Bejjani makes no secret of his admiration for the Souq business, and, with mall retail business under threat from the online trade, digital strategy is an imperative at MAF.

The outcome of the Souq sale also has resonance beyond the Middle East. Amazon is a company that — largely thanks to the skillful and long-term strategy of its founder Jeff Bezos — usually gets its way. It is such a giant of the US business scene that very few corporations can stand in its way, or hope to compete against its gigantic economies of scale.

It dominates US online retailing and has a commanding position in the cloud-computing business via its Amazon Web Services division, and is expanding fast in online media content. There is barely a part of the everyday US consumer experience in which Amazon does not play a significant role.

Some speculate that such a massive presence will eventually draw the unwelcome attention of the regulators. The US president has threatened as much.

But Amazon has not had its own way in the rest of the world, especially in the fast-growth countries in the East. In China it bangs up against Alibaba; in India, it has to contend with big local rivals.

The Middle East and Africa are the last great and unexploited regions of the world for e-commerce but have their own peculiarities, which may not make the Amazon behemoth the most appropriate partner.

The ball is in Souq’s court at the moment, as it considers Emaar’s offer and wonders whether cash-rich Amazon will come back with a higher bid. It is a battle royal for the future of e-commerce in the Middle East.

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emaar vs amazon battle royal for souq and future of ecommerce emaar vs amazon battle royal for souq and future of ecommerce

 



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