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Taking stock: Ma to delist

Jack Ma evidently finds some of his shareholders a distraction – and not just the American internet firm Yahoo, with whom he had a public falling out last year.

In fact he’s planning to pay off all the shareholders in business-to-business platform Alibaba.com, and delist from the Hong Kong Stock Exchange completely.

In a statement, the founder of Alibaba Group wrote: “[Delisting will] free the company from the pressure of market expectations, earnings visibility and share price fluctuations.” Ma also acknowledged that a deteriorating share price had been causing problems: “A depressed share price may continue to adversely impact…employee morale.”

Alibaba’s offer of HK$13.50 a share is about 46% higher than the closing price two weeks ago, when trading in the firm’s shares was halted. Most analysts expect shareholders to accept the offer, although the stock’s longer term investors won’t be as excited by the proposal, as it only matches the offer price of the firm’s initial public offering in 2007.

The deal will likely set Alibaba back $2.3 billion.

Ma also argues that the delisting will give the group much needed space as it works out a new strategy to turn Alibaba.com around – one that could require heavy investments that reduces short-term returns.

A turnaround strategy is needed. The listed company has just released its latest quarterly results which show profit down 6%. The number of premium suppliers also fell (Alibaba charges no commission on sales, making its money from extras such as fees charged to suppliers seeking ‘premium’ status).

The portal is still in recovery mode from a scandal related to fraudulent sale of goods (the CEO was forced to resign; see WiC96) and it has also endured a backlash from some users unhappy with changes to the way the site operates.

Analysts add that Alibaba.com’s core business – charging small and medium-sized Chinese sellers to connect with buyers at home and abroad – is under attack from search engines like Google and Baidu, says 21CN Business Herald. That’s because many sellers now choose to set up their own websites and pay search engines to promote them prominently in internet search queries. Other business-to-business platforms similar to Alibaba.com (like HC360.com and Global Sources) have also recorded diminishing sales.

There may also be other reasons why Ma is taking Alibaba.com private. The plan comes at a time when he has also been in negotiations to buy back shares from Yahoo, which owns a 40% stake in parent company Alibaba Group (see WiC125). So far, the dialogue has proved fruitless. But analysts reckon that the privatisation of Alibaba.com – the only division in the group to be listed – could help facilitate further discussion with Yahoo.

“By taking the unit private, it will make it more flexible for the parent company to reorganise its assets, and this will be helpful to the discussions,” says Dundas Deng, an analyst at Guotai Junan Securities.

Other speculation is that last week’s move is the first step towards a wider flotation of the whole Alibaba Group. Though the company has denied the rumour, commentors say such a listing would attract massive interest from investors excited about buying into China’s leading e-commerce specialist. The group’s portfolio includes the highly successful shopping site Taobao (see WiC94).

“The fact that all of Alibaba’s different pieces are centred around its core e-commerce business may make such a parent-level IPO a smart move, as this could be a rare case where all the pieces collectively might get a better price than the sum of the individual parts,” says Doug Young on his Business Blog.

Time will tell what Ma has in mind. “Ma is a very clever chess player. Whether listing as a whole or as part of the organisation, what he is doing now is setting up the three pieces (Alibaba.com, Taobao, and Alipay) so that the whole company will grow smoothly and strategically,” says Ge Xuehui, partner of Chinese Economic and Investment Consultants.

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