Property

Privatization Offer

Privatization OfferAlibaba has already been listing on the bourse of Hong Kong for five years. Alibaba Group, holding 71.3% of ALIBABA (01688), earlier proposed a privatization on Alibaba at HKD13.5 per share, acquiring 28.7% equity interest and warrants of the company for about RMB19.6 billion. The privatization price, which represents up to a premium of 45.9% against the issue price in 2007 and is 61.35% above the 120MA, is an incredible bargain for investors who bought the shares of the company in 2007. However, for those who bough the shares at nearly HKD40 per share, the price of HKD13.5 is just better than nothing.

Conversely, for those investors who bought on dip at HKD3.4, the HKD13.5 is certainly a windfall for them. Following the privatization announcement, Alibaba also announced the results for the fourth quarter of 2011; the results trailed estimates and only recorded a profit of RMB1.72 billion. However, the company still got HKD14 billion on hand. As the cash flow of the listed company reaches RMB2 billion to RMB3 billion each year, the financing problem in relation to the privatization has basically been solved. Yet, according to market analysts’ remarks, the decline of the results is mainly the result of sustained decrease in the members of China Gold Suppliers and TrustPass by 7.6% and 2% year-on-year respectively, the main culprit dragging down the results for the fourth quarter.

Apart from the results which rendered no surprise, the report by the Bank of Communications International also noted four reasons for which Alibaba accepted the privatization: first, the privatization price, representing the issue price five years ago, provides an opportunity for minor shareholders to realize their capital and such move is broadly welcomed by the market; second, it also helps the parent company Alibaba Group reintegrate its subsidiary businesses, allowing more flexibility for the integration strategies in the future; third, it remains the group’s controlling interest in Yahoo, leaving more room for the group’s buy-back of all the shares from Yahoo in the future; fourth, it allows the group to raise large sum of funds that helps accelerate the deployment of the group’s overall listing plan in the future. The management of Alibaba, in response to the worse-thanexpected results of the group, explained that the operation of AliExpress, which is engaged in global logistics and wholesale business, takes times, adding despite the transaction amount of USD1 billion on the network market for the 2011 as a whole, the attention should be paid to the long-term sake.

The business development of the trading platform 1688.com and the wholesales platform AliExpress is quite smooth. However, the short term advantage still depends on Taobao and T-Mall, which may bring synergy effects to the group. It is also expected that the group is likely to conduct spin off listing for Taobao and T-Mall following the privatization of Alibaba. An analysis report by J.P. Morgan is positive that the privatization will be approved given the low price offered by the privatization. The privatization will only be conducted under the premise of more than 75% of the minor shareholders for the privatization and less than 10% of the minor shareholders against the proposal. The report also stated that the extremely high premium offered by the privatization is compelling to shareholders; the high premium also helps gather the dispersed ownership; the privatization offer is a win-win proposal for everyone given the weakening growth momentum of Alibaba. It is expected the parent company will regain the 1/3 equity interest of Alibaba from Yahoo if the privatization is completed successfully.

However, due to the success of Alibaba, Ma was repeatedly invited to give lectures to some world’s leading institutions, including the University of Pennsylvania’s Wharton School, MIT, Harvard University, etc. He was also awarded for his outstanding leadership as well as poverty alleviation and disaster relief work. “Time” magazine recognized him as one of the world’s 100 most influential people in 2009, while “Asia Forbes” magazine picked him as one of the Asian Charity Heroes. Since 2006, he was being the most unique and influential judge for the two series of “Win in China” by CCTV. Together with Yahoo, Alibaba provided platform for the official website of the programme.