China's Alibaba files in US for what may be biggest tech IPO

Wednesday 07 May 2014 17.40
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Alibaba Group Holding Ltd is expected to raise more than $15 billion when it lists in New York
Alibaba Group Holding Ltd is expected to raise more than $15 billion when it lists in New York
Lead founder Jack Ma owns 8.9% of Alibaba
Lead founder Jack Ma owns 8.9% of Alibaba

Alibaba gave investors a closer look at the scale and growth of the Chinese e-commerce giant in an initial public offering (IPO) prospectus filed last night.

This is the first step in what could be the largest technology debut in history. 

Alibaba Group Holding Ltd, which powers 80% of all online commerce in the world's second-largest economy, is expected to raise more than $15 billion.

It could top the $16 billion pulled in by Facebook when it listed in 2012. 

The bulk of the proceeds will go to Yahoo - which bought a 40% stake in Alibaba in 2005 for $1 billion and which must sell more than a third of its current 22.6% stake through the IPO.

Alibaba also plans to sell new shares, people familiar with the plans have said, to bulk up a cash war chest depleted by a rash of recent acquisitions.

While the Alibaba brand is less well known in the US than companies such as Amazon.com and Facebook, the Chinese company's listing has stirred the most excitement in Silicon Valley and Wall Street since Facebook's record IPO.

Alibaba will become the largest Chinese corporation to list in the US - on either the New York Stock Exchange or the Nasdaq.

Alibaba will debut later this year in a market where high-flying tech stocks like Twitter and Amazon have fallen in recent weeks in a sell-off that has divided analysts and investors, reviving doubts about soaring tech valuations.
              
Still, estimates of Alibaba's market value have soared in recent months, to even beyond $200 billion, underscoring Wall Street's eagerness to take a crack at a massive Chinese company with robust growth.

Alibaba handled over $248 billion worth of deals last year
              
Alibaba handled more than 1.5 trillion yuan - about $248 billion - of transactions for 231 million active users across its three main Chinese online marketplaces in 2013, more than Amazon and eBay combined. It did so with 20,884 full-time workers, fewer than eBay.

Alibaba did not give any hints in its IPO prospectus about potential plans for the US e-commerce market. Analysts said it was unlikely Alibaba would adopt the model favoured by Amazon, which sells goods directly to consumers using a sprawling network of warehouses.
             
Alibaba, founded 15 years ago in a one-room apartment in Hangzhou and controlled by a 28-member partnership, boasts of building a company that will last "at least 102 years."
              
After the IPO, Alibaba said, the partnership will have the exclusive right to nominate a simple majority of the members of its board of directors.
              
Alibaba operates an online messaging service as well as a cloud computing business, but more than 80% of its revenue comes from its Taobao, Tmall and Juhuasuan online marketplaces. Top items sold on Taobao include prepaid phone and game cards as well as lottery tickets, home furniture and baby products, the company said.
              
Total revenue increased 62% to 18.75 billion yuan ($3.01 billion) in the three months from October to December of 2013 from a year earlier, while net income more than doubled to 8.27 billion yuan, according to the prospectus.
              
By 2020, online retail sales in China will reach $420-$650 billion, as much as the US, Japanese, UK, German and French markets combined, according to a recent analysis by McKinsey Global Institute.

Alibaba's prospectus also laid out a raft of regulatory risks it faces at home. The company stressed that Beijing could impose additional restrictions on the use of Alipay, the payment service that powers the majority of its online transactions.
              
Unlike many prominent US tech IPOs of recent years, Alibaba's list of significant shareholders is short. By contrast, Facebook and Twitter each broke out shareholdings from more than a half dozen individual principal shareholders.
              
Former English schoolteacher and lead founder Jack Ma owns 8.9% of Alibaba. Joseph Tsai, a co-founder and executive vice-chairman, is the only other individual with a disclosed shareholding, of 3.6%. Yahoo and SoftBank, respectively, own 22.6% and 34.4% of Alibaba on a fully diluted basis. 

Alibaba estimated its fair value as of this month could reach $50 per share, an increase of more than six times from the $8 a share value estimated in June 2011, according to last night's prospectus. 

This calculation helps determine employee compensation and does not necessarily represent a likely IPO price. 

At the most recent fair value estimate, Yahoo's stake in Alibaba is worth $26.2 billion and SoftBank's almost $40 billion. Ma's stake would be worth $10.3 billion.
              
The fair value estimate puts Alibaba's size at $116.1 billion, well below the $152 billion average from 25 analysts ina Reuters survey.
              
While Yahoo and SoftBank may be among the biggest beneficiaries of the IPO, neither will exercise much control of Alibaba.

It has already been agreed that Yahoo Chief Development Officer Jacqueline Reses will resign from Alibaba's board upon the listing, while SoftBank will have the right to nominate just a single director to a new, nine-member board.
              
Alibaba's decision to list in the US was a blow to the Hong Kong stock exchange, which was initially its preferred IPO venue, but the city's regulators balked at any potential violation of the "one-share-one-vote principle."