China’s Alibaba Plans U.S. IPO

The market for initial public offerings is heating up. To prove it, China’s e-commerce site Alibaba is planning to list its shares in the U.S. in a long-awaited share sale.

Reuters has these details in a story by Elzio Barreto and Denny Thomas.

Chinese e-commerce giant Alibaba Group Holding Ltd has decided to hold its long-awaited IPO in the United States and is in discussions with six banks to underwrite the deal, in what is set to the most high-profile public offering since Facebook Inc’s listing nearly two years ago.

Alibaba said in a statement on Sunday it had decided to begin the U.S. IPO process, ending months of speculation about where it would go public.

Separately, sources told Reuters that Alibaba is in discussions with Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs Group, J.P. Morgan, and Morgan Stanley for lead underwriting roles.

Most of the six banks are to set to win the coveted role of joint global coordinator, added the sources, who were not authorized to discuss the matter publicly.

Analysts estimate the Hangzhou, China-based company has a value of at least $140 billion, and the IPO proceeds could exceed $15 billion, Reuters previously reported. The deal would be a huge coup for the six banks, as it would yield an estimated $260 million in underwriting fees, assuming 1.75 percent commission, and catapult them in league table rankings.

The Bloomberg story by Lulu Yilun Chen added this background on the reasons for listing in the U.S. versus an Asian market:

“The U.S. has obvious advantages in terms of the depth of the pool of capital and sophistication of the investor base,” said Duncan Clark, Beijing-based chairman of BDA China Ltd., which advises technology companies. “In terms of the control issue, Jack and the management, it seems that the Hong Kong stock exchange wasn’t able to accommodate.”

Alibaba has decided to start the process for an IPO in the U.S., and a future listing in China may be considered “should circumstances permit,” the Hangzhou-based company said yesterday in a statement. Alibaba proposed that its partners nominate a majority of the board of directors, a system that isn’t allowed under Hong Kong rules.

The IPO may be the biggest since Facebook Inc. (FB) in 2012 and is a blow to Hong Kong, which hasn’t hosted an initial share sale of more than $4 billion since October 2010. Alibaba hasn’t decided when to file for the listing, which U.S. exchange to list on, how much to raise or how large a stake to sell, the person familiar said.

Alibaba bought back a 20 percent stake from Yahoo! Inc. in 2012 in a deal that valued the Chinese company at $35 billion. The Sunnyvale, California-based Web portal still owns 24 percent of Alibaba while Japan’s SoftBank Corp. (9984) owns about 37 percent stake, the companies have said.

Gregory Wallace wrote for CNN Money that Alibaba has been negotiating for months with Hong Kong regulators about where to list:

Alibaba’s long-awaited decision was revealed Sunday after months of negotiations with Hong Kong stock authorities. The company had said a major sticking point was its proposed governance structure.

Alibaba’s announcement included a reference to that issue: “We respect the viewpoints and policies of Hong Kong and will continue to pay close attention to and support the process of innovation and development of Hong Kong.”

But the decision for a U.S.-based IPO “will make us a more global company and enhance the company’s transparency, as well as allow the company to continue to pursue our long-term vision and ideals.

But Wall Street is watching who will win the coveted roles of working on the offering. While there is plenty of money to go around, the Wall Street Journal story by Telis Demos and Juro Osawa said Alibaba planned to pay them all the same:

Credit Suisse Group AG CSGN.VX -2.89% , Deutsche Bank AG DBK.XE -1.52% ,Goldman Sachs Group Inc., GS -0.81% J.P. Morgan Chase JPM -1.08% & Co. andMorgan Stanley MS -1.08% are expected to get equal billing for their jobs as co-lead underwriters of the IPO, according to people familiar with matter.

The Chinese e-commerce company also is considering paying the banks about the same fee, though a final decision hasn’t been made and plans may shift, the people said.

With that arrangement, Alibaba would be making a break from recent large Internet IPOs, including those of Facebook Inc. FB -1.61% and Twitter Inc., TWTR -3.08% which each paid one bank far more than the others that were named to senior roles.

In the Facebook and Twitter deals, respective lead banks Morgan Stanley and Goldman Sachs received nearly twice the fees of the next tier of underwriters, according to company filings.

Alibaba, whose websites conduct more business than Amazon.com Inc. AMZN +0.60%‘s, said in a statement over the weekend that it has started its long-awaited march to an IPO in the U.S. after initially weighing a deal in Hong Kong.

The company picked the banks as co-leads of the planned share sale, The Wall Street Journal reported over the weekend. Citigroup Inc. also has a role in the deal, according to people familiar with the matter; details of the role weren’t clear Sunday night.

The IPO, which could come as soon as this summer, may raise more than $15 billion, making it one of the largest ever in the U.S., people familiar with the matter said.

That could translate into hundreds of millions of dollars in fees and other business to banks and exchanges in the U.S.

And that’s really what IPOs are all about. Individual investors rarely get to buy into the first sale meaning that institutional investors get the biggest first day gains. The real winners are likely to be those who get to list the shares.