Did Groupon Value Its China JV Gaopeng at 500M Dollars in July?

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  • on October 23rd, 2011

From page 128 of the latest Groupon S-1:

E-Commerce King Limited Joint Venture (China). In January 2011, Groupon, B.V., a subsidiary of Groupon, acquired a 40.0% ownership interest in E-Commerce King Limited (“E-Commerce”), a joint venture with Rocket Asia GmbH & Co. KG (“Rocket Asia”), an entity owned by Rocket Internet, TCH Burgundy Limited (“Tencent”) and Group Discount (HK) Limited (“Yungeng” [TYPO, SHOULD BE YUNFENG?]), for $4.0 million. Rocket Asia acquired a 10.0% ownership interest in E-Commerce. E-Commerce subsequently established a wholly foreign owned enterprise that created a domestic operating company headquartered in Beijing, China (“GaoPeng.com”). GaoPeng.com operates a group buying site offering discounts for products and services to individual consumers and businesses via internet websites and social and interactive media. GaoPeng.com began offering daily deals in Beijing and Shanghai in March 2011 and has subsequently begun offering daily deals in other major cities in China. In July 2011, Groupon, B.V. purchased an additional 9.0% ownership interest in E-Commerce from Rocket Asia for a purchase price of $45.2 million consisting of 2,908,856 shares of our non-voting common stock. Groupon, B.V., Tencent, Yunfeng and Rocket Asia currently own 49%, 40%, 10% and 1%, respectively, of E-Commerce. Pursuant to a shareholders agreement entered into in connection with the joint venture, the board of directors of E-Commerce consists of a director appointed by Groupon, B.V., a director appointed by Rocket Asia, who is Oliver Samwer, and two directors appointed by Tencent. Each of the parties to the joint venture also has rights of co-sale and first refusal pursuant to the shareholders agreement.

Paying $45.2 for 9% equates to a $502,222,222 valuation. That seems high given the issues Groupon’s ($GRPN) Gaopeng JV has had. Is something else going on here?

Chalk up another win for the Samwer brothers.

[UPDATE: A must read from iChinastock–Groupon’s China Train Wreck: Gaopeng JV Posts $46 Mln Loss, Only $2.1 Mln in Revenues:

Groupon’s recent S-1 filing reveals its China joint venture (JV), Gaopeng, to be a flaming train wreck. In the first nine months of 2011, Gaopeng had $46.4 million in net losses, with only $2.1 million in revenues. Gaopeng.com went online in March 2011.

Margins are dangerously slim, although Gaopeng had made noise that it was going to ‘maintain its margins’ when it first entered the market. The $2.1 million in revenues (the commission Gaopeng negotiates with merchants) comes from $18.4 million in gross billings (the total amount collected from customers). That’s a margin of 11.6% for Gaopeng, which is higher than the 5% some other Chinese group-buying sites charge, but far below the 40.6% margin that Groupon reported in the US over the same time period.

How does Groupon step up the Gaopeng valuation from $10 million at formation in January 2011 to $500 million in July 2011, on the back of these numbers? END UPDATE]

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