By Hadeel Al Sayegh and Alexander Cornwell
DUBAI (Reuters) - Souq.com will expand its workforce and operations after Amazon (O:AMZN) clinched a deal to buy 100 percent of the Middle East online retailer, executives from both firms said.
Amazon and Souq.com said earlier on Tuesday they had agreed on the takeover, despite an eleventh-hour bid by Dubai billionaire Mohamed Alabbar’s Emaar Malls (DU:EMAA) to cut in with an offer it said was worth $800 million.
Executives have not disclosed the value of the Amazon deal, which adviser Goldman Sachs (NYSE:GS) called "the biggest-ever technology M&A transaction in the Arab world".
Sources with knowledge of the takeover said Amazon was paying less than Emaar's offer, making it lower than Souq.com's $1 billion valuation when it sought funding last year.
One source said Souq.com would have broken an exclusivity agreement with Amazon if it accepted Emaar's bid at this stage.
"Amazon is a great fit with us. We have a lot of common values and it is all about innovation, technology and the type of customer experience and thinking that Amazon has," Souq.com Co-Founder and Chief Executive Ronaldo Mouchawar told Reuters.
Souq.com, founded in 2005, stocks 8.5 million items on its website and generates about 50 million monthly visits, Mouchawar said. It delivers to the six Gulf Arab states and Egypt.
Mouchawar said there was scope to expand the business with Amazon and to increase the 3,000-strong workforce to boost Souq.com's reach, without saying by how many it would rise.
"We will continue to invest in our segment and grow our markets," he said at Souq.com's Dubai headquarters.
Despite its young, tech-savvy population, shoppers in the Middle East still prefer to shop in stores. Online retail accounts for less than 1 per cent of total sales in the Middle East, according to market researcher Euromonitor International.
"We want to figure out how to grow the team here. If we're going to grow the business we have to grow logistics, we have to grow technical development," Amazon Senior Vice President Russ Grandinetti said.
In a deal document seen by Reuters, Goldman said the acquisition would accelerate Amazon's entry into "attractive Middle East countries with significant growth potential."
After the Amazon takeover, Middle East consumers will be able to buy products available on Amazon.com through Souq.com, and Middle East merchants will have access to a wider market via Amazon's network.
The acquisition is expected to close later this year.
Souq.com's current shareholders include South Africa's Naspers Ltd (J:NPNJn) and Tiger Global Management.
The Amazon deal was welcomed by the Dubai government, which is increasingly focusing on technology, as the emirate expands its retail footprint in the region.
Dubai's Crown Prince Sheikh Hamdan bin Mohammed bin Rashid al-Maktoum said in a statement it showed the city state's position "as a regional and global hub for the world's biggest and leading organizations."
Amazon's acquisition of Souq.com is seen as significant for the Middle East's nascent tech sector.
"This is effectively a vote of confidence in the region. You have a major American company going into a digital company in the region," said Fadi Ghandour, founder Dubai-listed logistics firm Aramex (DU:ARMX) and a prominent venture capitalist in the Middle East.
(This story was refiled to clarify in paragraph 16 the government welcoming the deal)