Yahoo deal may pave way for Alibaba IPO
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E-mail Shanghai Daily, June 12, 2012
The agreement between Yahoo Inc and Alibaba Group to unwind their contentious relationship paves the way for an Alibaba IPO that could make China's largest e-commerce provider the nation's third-biggest listed Internet company.
"This could become the biggest Internet listing following the IPO of Facebook," said Fang Xingdong, a veteran industry observer and the founder of Chinalabs.
Under the deal with Yahoo, Alibaba will repurchase 20 percent - or about half of Yahoo's stake - for US$7 billion, valuing the company at US$35 billion. That would place Alibaba behind Tencent and Baidu in market capitalization. No details or date of the initial public offering has been announced.
The Alibaba group operates the Taobao Mall online consumer shopping site and the business-to-consumer TMall site, among other assets.
California-based Yahoo and fellow investor Softbank Corp of Japan agreed to cap their voting rights in Alibaba at below 50 percent, making Alibaba and its executives majority shareholders. Yahoo also won the right to sell another 10 percent stake in Alibaba at the share price of the group's IPO if the share sale meets certain criteria. The offering price shall be higher than 1.1 times the price of Alibaba's US$7 billion repurchase, which is around US$14.85, and to be done by December 31, 2015.
Alibaba is reportedly in talks with private equity companies to finance part of the buyback.
"Introducing private equity firms seems to me a hard step but an inevitable choice for (Alibaba Group chairman) Jack Ma because he needs their capital to take back control from Yahoo," Fang said.
Under the new shareholder structure after the Yahoo stake is repurchased, Alibaba executives and staff will hold 42 percent share of the company. Softbank will hold 35 percent and Yahoo, 23 percent.
Softbank and Yahoo will have 49.9 percent of voting rights on the Alibaba board of directors. Yahoo also gave up the power of veto over Alibaba strategy and business decisions.
Separately, Alibaba is also taking its Hong Kong-listed business-to-business Alibaba.com unit private. Minority shareholders approved the buyback of the 27 percent stake that the parent didn't already own. The buyback is priced at HK$13.50 (US$1.74) a share in cash, the same as its offer price in 2007.
Profit at Alibaba.com has been falling in the past year amid a sluggish world economy and a strategic shift from increasing member numbers. Shares of Alibaba.com will be delisted late this month.
Reuters reported last month that a consortium of a dozen banks has agreed to offer Alibaba Group loans of up to US$4 billion. Elsewhere, China Investment Corp is also reportedly in talks to buy up to a US$2 billion stake in Alibaba Group.
Alibaba Vice President Tao Ran said the company is keeping a "conservative leverage level" and that the group's cash flow will provide a strong support for the loans it is seeking.
He didn't reveal the actual size of the loans the group is seeking nor the cash situation.
"The financing from private equity firms and banks will put a heavy burden of interest on Alibaba, and Jack Ma and his team will certainly face another round of contest with these investment bankers," said Li Yunhui, director at financial service company Bluehill Advisory.
Ma will have to try hard to seek financing at a relatively low cost and at the same time keep the majority stake in his own pocket.
According to Yahoo's stock exchange filings, Alibaba Group had 18.4 billion yuan (US$2.9 billion) of revenue in 2011, up an annual 80 percent. Excluding the Alibaba.com unit, revenue surged 158 percent to 11.9 billion yuan.
The question remains whether Alibaba can maintain the high growth rate, with major rivals 360Buy and Tencent heating up the competition in the online shopping sector.
One of the underlying concerns about the recent Facebook IPO was uncertainty about how massive numbers of subscribers would be parlayed into higher revenue. The Facebook IPO disaster gives investors pause. Facebook shares last Friday closed at US$27.10, a decline of nearly 29 percent from their offer price.
A report from news portal Sina last week cited an unidentified source at an investment bank as saying that 360Buy is also preparing for an IPO and could start selling shares as early as September.
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