Chinese E-commerce Company Ponders Privatization

   Date:2012-02-27

Alibaba Group and its Hong Kong-listed unit Alibaba.com have jointly announced that Alibaba Group has proposed an offer to the board of directors of Alibaba.com to take the company private.

If the privatization is completed, Alibaba.com, the flagship subsidiary and the only listed unit of Alibaba Group, will terminate its listing.

According to the report published by Alibaba.com, its proposal offers minority shareholders HKD13.5 per share in cash, which implies a premium of 60.4% over the 60-day average closing price of Alibaba.com shares, and a premium of 55.3% over the 10-day average closing price. The company will buy back the 26% of shares currently floating around the public market and it will cost about HKD19 billion.

In regards to the reason for Alibaba Group's decision to privatize its publicly traded subsidiary, Shao Xiaofeng, secretary general of Alibaba Group, quoted the report by saying that with the global economic changes and business development in recent years, the entire strategic direction of the listed company is facing major adjustments and transformations. The stock re-purchase is to provide minority shareholders an opportunity to realize returns while Alibaba.com implements a shift in its business strategy.

This shift could result in slower revenue growth and less earnings visibility in the short- to medium-term. Alibaba.com's business in the early years was driven by a focus on rapidly increasing the number of manufacturers, trading companies and wholesalers that pay a subscription fee to sell products on the company's marketplaces in order to maximize revenue growth. In 2011, the company implemented a major initiative toward improvements in the quality of the buyers' experience on the company's online marketplaces. As a result, the pace of adding paying customers has slowed. In previous disclosures, Alibaba.com outlined this strategic shift, warning investors that despite confidence in the favorable long-term prospects of these initiatives, there would likely be a short- to medium-term impact on financial results.

Jack Ma, founder, chairman and CEO of Alibaba Group and board chairman of Alibaba.com, said that taking Alibaba.com private will allow the company to make long-term decisions that are in the best interest of their customers and that are also free from the pressures that come from having a publicly-listed company. With this offer, they provide their shareholders a chance to realize investment at an attractive cash premium rather than waiting indefinitely during this period of transition. 

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