China's e-commerce giant Alibaba announced on Friday that it has virtually gobbled up China's version of YouTube - Youku Tudou - after paying around $3.7 billion in cash for the remaining shares in the company.

Xinhua reported that Alibaba first acquired more than 18 percent of Youku stocks more than a year ago.

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By acquiring the rest of the video platform company, Alibaba would have unrestricted access to its 500 million online users.

Youku's shares also known as American Depository Share climbed up to $26.80 before Friday trading started. However, Alibaba's offer per share was still higher that the trading price at $27.60, according to Reuters. Based on Youku's stock price on October 15, Alibaba will buy its stocks at premium of around 35 percent.

The merger will cost Alibaba around $4.8 billion based on the purchase price per share. Fortunately for the e-commerce company, its acquisition will also mean the turnover of Youku's cash holding amounting to $1.1 billion.

Deducting Youku's cash reserve from the purchase price means that Alibaba will only pay around $3.7 billion.

Henry Guo, an analyst for Summit Research, said that Youku badly needs the merger since it has been consistently operating at a loss.

Youku CEO Victor Koo will have to give up his stocks, which is estimated to be around 18 percent of the company's total outstanding stocks. However, he will stay onas CEO after the two companies merge early next year.

Koo believes that Youku Tudou will remain China's primary platform for video sharing and watching due to its merger with Alibaba.

Youku and Tudou are actually former competitors that decided to merged three years ago. That agreement reportedly was worth about a billion dollars.

Alibaba has embarked on a campaign to acquire digital media companies for several years now.

A year ago, the e-commerce company bought a majority stake of ChinaVision Media Group for more than $800 million and renamed the company Alibaba Picture.

Following that purchase, Alibaba spent a billion dollars to buy a 20 percent stake in Wasu Media Holdings. The company reportedly also made a $383 investment in Beijing Enlight Media, a television production outfit.

TagsYouku Tudou, Alibaba merger, Youku Tudou merger, Youku Tudou $3.7 purchase, ChinaVision Media Group, Wasu Media Holdings, Beijing Enlight Media, Youku Tudou CEO Victor Koo, China's YouTube