Alibaba Group Holding Ltd (NYSE: BABA) plunges over 1.26% in pre trading session on Thursday as the As the firm emerges from regulatory crackdowns that shook the Chinese internet sectors, top executives of Alibaba announced Thursday that the company aims to spin out portions of its expansive e-commerce and financial empire as independent businesses to increase their flexibility and value.
In preparation for some of its subsidiaries’ upcoming stock offerings, Alibaba CEO Daniel Zhang provided information on a plan to divide Alibaba into six core units that was revealed earlier this week. After a string of setbacks as authorities tightened industry control, the restructure heralds a new phase in Alibaba’s expansion.
Zhang stated in a conference call that Alibaba, which has its headquarters in the eastern city of Hangzhou, will take on the role of “a holding company that is the controlling shareholder of the business group firms.” If group firms go public, Alibaba will continue to assess their strategic value and determine whether or not to maintain ownership, according to CFO Toby Xu. He wouldn’t speculate on when they would be made public.
Each business group firm can seek separate financing and IPOs as and when they are ready since, in our opinion, the market is the greatest yardstick, said Xu.
Since the restructure was revealed on Tuesday, Alibaba’s stock prices in Hong Kong and New York have increased by about 15%. By Thursday lunchtime, the company’s shares on the Hong Kong exchange had increased 0.9%.
The proposal and Alibaba founder Jack Ma’s recent return to China after many months abroad seem to herald a turning point after several trying years. A planned IPO of Alibaba’s finance unit Ant Group in 2020 has been postponed after Chinese regulators singled out Alibaba for examination in a crackdown on technology and internet businesses.
After giving a speech in Shanghai in November 2020 when he publicly lambasted China’s authorities and banking institutions, Ma has maintained a low profile and made few public appearances.
In what would have been the biggest share sale in history at the time, Ant was slated to raise $34.5 billion. After an investigation into Alibaba’s alleged antitrust violations, Chinese authorities cracked down on the once-free-wheeling technology sector and fined the company $2.8 billion.
The division of Alibaba will result in the formation of the Cloud Intelligence Group, the Taobao Tmall Business Group, the Local Services Group, the Global Digital Business Group, the Cainiao Smart Logistics Group, and the Digital Media and Entertainment Group. With the exception of Taobao Tmall, every company may consider an IPO. Alibaba Group will continue to hold 100% of Taobao Tmall.
The restructuring, according to Zhang, would “allow all of our businesses to become more nimble, strengthen their decision making, and enable faster reactions to market developments,” but it would also be difficult. The reorganization proposal may, among other things, assuage prior antitrust worries given that, as Zhang indicated, each Alibaba business unit will be given the authority to decide for itself and acquire cash on its own.
According to a letter from Moody’s Investor Service, “the weaker links between the business divisions is in accordance with the regulatory approach of supporting competition.”
