Chinese e-commerce monolith Alibaba is reportedly planning to hold an initial public offering as early as April. The company is expected to list in New York after encountering regulatory issues in Hong Kong, and has reportedly tapped Simpson Thacher & Bartlett, Credit Suisse, and Morgan Stanley to handle the IPO. It’s said to be seeking at least $15 billion in funding.
The offering is expected to be the biggest since Facebook went public in May 2012. Investors are excited enough that Yahoo, which owns 24 percent of Alibaba, has seen its stock rise on the news. BGC Partners analyst Colin Gillis told Bloomberg that investors have actually been buying Yahoo stock as a way to get some slice of Alibaba. “A lot of people are investing in Yahoo as a proxy for Alibaba,” he said. “In fact, I would say the majority of people are.”
Reactions from around the Web
The New York Times notes the importance of Alibaba listing in New York:
The selection of New York would come as a snub to the Hong Kong Stock Exchange, which has resisted overtures to bless Alibaba’s partnership structure, in which a group of insiders would maintain some control over the company’s board. The rules of the Hong Kong exchange prohibit corporate structures that let minority shareholders preserve control of companies.
Reuters explains that contentious corporate structure:
Part of the reason for Alibaba to favour a listing in the US, rather than Hong Kong, is its partnership structure that allows founder Jack Ma to retain control of the firm despite limited equity ownership.
Ma and his top executives own only about 10% of the firm. US internet firm Yahoo andJapan‘s SoftBank own 24% and 37%, respectively. There are currently 28 partners in the company. The US market allows dual-class share structures but does not have any exact precedent for the partnership structure of Alibaba.
The Financial Times highlights Alibaba founder and executive chairman Jack Ma:
The IPO will raise the international profile of Jack Ma, a cult figure in China since he founded Alibaba in his apartment in 1999. The former English teacher and translator stepped back as chief executive officer last year to focus on problems including Chinese pollution, but remains executive chairman.
The listing is also being closely watched by investors in Yahoo and SoftBank, Alibaba’s two largest outside shareholders, whose stocks have soared in the past year amid rising expectations for Alibaba’s IPO. Yahoo paid $1bn for 40 per cent of Alibaba in 2005, asking Mr Ma to run its China operations in return. It has since reduced its stake.
Pando weighs in
Kevin Kelleher noted after Yahoo sold half of its stake in Alibaba that the sale wouldn’t really help the company:
It seems Yahoo will have much less cash for any expansion plans. It was clear that Yahoo wouldn’t get the full $7.6 billion. There are were fees for handling the deal, not to mention taxes. And Alibaba was paying $800 of the sum in a different class of equity, not cash. So with all that factored in, Yahoo was left with $4.3 billion in cash. But still, quite the bulging billfold.
But only a small minority of the proceeds would go toward its own coffers. Where did the rest go? In the press release announcing the transaction, Yahoo said that 85% of the cash proceeds – or $3.65 billion – would go to shareholders. In fact, Yahoo had already spent $646 million of the money on share repurchases – essentially paying out existing shareholders who wanted to sell their Yahoo holdings.
He then wrote six months later that the sale may have helped in one way:
Early on in her tenure, Mayer sold off half of Yahoo’s stake in Alibaba and gave most of the proceeds to shareholders. While that move limited Yahoo’s ability to make strategic acquisitions, it’s had the short-term benefit of lifting the stock 48 percent since then, increasing the paper value of stock held by Yahoo employees and making its future appear more attractive to potential hires.
Pando alum Hamish McKenzie wrote about Jack Ma’s departure last January:
Iconic Alibaba Group founder Jack Ma announced today he is stepping down as the company’s CEO, telling employees in an open letter that at 48 he is no longer ‘young’ for the Internet business.
Ma will step down on May 10 but promises to ‘fully dedicate’ himself to a role as executive chairman for Alibaba Group, China’s largest ecommerce company, which is said to be valued at $43 billion. He will still be responsible for the company’s corporate strategy and social responsibility efforts, but he is relinquishing the day-to-day tasks of CEO.
[image via wikimedia]