Alibaba.com Privatization: Parent IPO Coming? 阿里巴巴网私有化：母公司或将上市？

By newsdoug on February 22, 2012

Alibaba prepares to privatize listed unit The latest wrinkle of the Alibaba saga has just unfolded with the company’s announcement of a plan to take its B2B site Alibaba.com (HKEx: 1688) private at a big premium, in what looks like a step before a potential new multibillion-dollar IPO for the entire group. I’m usually not a big fan of this kind of IPO for a parent company with many different business units, as I think listings of separate units is a more transparent way for people to invest in such companies. But in this case, the fact that all of Alibaba’s different pieces are centered 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. Let’s backtrack a moment and look at the privatization deal, which has the unlisted parent company, Alibaba Group, offering HK$13.5 per Alibaba.com share, a 46 percent premium over the company’s last closing price, valuing the listed company at about $8.7 billion. (HKEx announcement) That valuation would help Alibaba in its broader plans to buy back the 40 percent stake in the the parent company held by Yahoo (Nasdaq: YHOO), at a higher valuation, which some recent investors said could be as high as $32 billion. The privatization plan comes as Alibaba.com’s recent performance has suffered amid a fraud scandal that forced the resignation of its CEO last year. The listed company just released its latest quarterly results showing its fourth quarter profit fell 6 percent, and its number of premium suppliers also fell. (results announcement) The privatization will allow Alibaba to focus on its bigger objective of buying back the Yahoo stake, and also tells the market what it thinks the Alibaba.com business is worth, namely about $8.7 billion, helping it to get a better valuation for the entire company. But from my perspective, the final objective in all this increasingly looks like a potential IPO for the entire Alibaba Group within a year of completion of the Yahoo stake buy-back. Part of the buyback will almost certainly include bringing in investors to help pay some of the bill for the Yahoo stake, which could be worth up to $13 billion. Many of those new investors, as well as some of Alibaba’s older investors, will want to get some quick returns for their investments, which Alibaba could do most easily by listing the entire company. Such a listing would probably also attract much more interest from stock market investors who would be much more excited about buying into China’s leading e-commerce specialist rather than just one of its pieces. So after the privatization and buyback are finished, I wouldn’t be surprised to see Alibaba Group file for an IPO in Hong Kong or the US, possibly as soon as the end of this year.

Bottom line: Alibaba’s latest plan to buy privatize its B2B unit looks like a step towards what could ultimately a multibillion IPO for the entire company, possibly by year-end.

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