Media Moves

Coverage: Alibaba moves closer to IPO

September 8, 2014

Posted by Liz Hester

Chinese Internet giant Alibaba revealed its offering price on Sept. 5, seeking as much as $21.1 billion. The coverage over the weekend ranged from profiles of the CEO to investor appetite for the shares.

The New York Times story by David Barboza profiled Jack Ma and his grip on the firm:

When the Alibaba Group goes public later this month in an offering that could value the company at about $160 billion, investors will have little doubt about who is in control of the company. Mr. Ma, 49, is the public face. He is the chief negotiator. He is the top strategist. He is the biggest individual investor, with a 9 percent stake.

Alibaba, a company started out of Mr. Ma’s apartment in 1999, is now a technology colossus worth more than American stalwarts like eBay and Hewlett-Packard. Under his leadership, Alibaba has become not just the dominant force in China’s e-commerce but also a symbol of the country’s breathtaking economic rise. The company has 250 million active buyers in China, and its orders account for more than 60 percent of all package deliveries in China.

That success has helped make Jack Ma a kind of celebrity C.E.O., an executive comfortable hobnobbing with business moguls in Davos, leading tours of his company for China’s political elite and promoting the “Wisdom of Jack Ma” in books and on DVDs. The initial public offering could make Mr. Ma, already one of China’s richest men, worth more than $15 billion. He has already pledged to give away much of that wealth, which would instantly make him one of the world’s major philanthropists. (Mr. Ma and Alibaba declined to comment for this article, citing regulatory restrictions on public statements ahead of an I.P.O.)

Jessica Toonkel wrote for Reuters that U.S. retail investors don’t know the company and aren’t showing too much interest in purchasing it:

When Chinese e-commerce giant Alibaba Group Holding revealed plans earlier this year to go public on a U.S. stock exchange, financial advisers like Bob Mecca in Hoffman Estate, Illinois braced themselves for a wave of frantic calls from retail investors wanting to get in on the action.

Alibaba, which sells more than Inc and EBay Inc combined, could raise over $21 billion in its IPO. It is often described as technology’s hottest initial public offering since Facebook Inc’s 2012 debut, although initial pricing announced on Friday was less than many predicted.

Retail investors generally get only 10-20 percent of shares in big IPOs, and several advisers told Reuters they had expected a scramble from clients. But the phone has not been ringing off the hook.

“People are on Facebook, they know it, but no one has ever heard of Alibaba,” said Mecca, who has $175 million in assets under management.

The number of client inquiries about the Alibaba IPO is around a quarter of what it was for Facebook at this stage of the process and about half of what it was for Twitter Inc, said Steve Quirk, senior vice president of the group serving active traders at discount broker TD Ameritrade Holding Corp.

The Wall Street Journal detailed who will be the biggest winners once the sale goes through in a blog post by Maureen Farrell:

Jack Ma, Alibaba’s founder and executive chairman, owns 206.1 million shares of Alibaba, or 8.8% of the company. At a price range between $60 and $66 per share, his stake would be valued between $12.4 billion and $13.6 billion.

Mr. Ma is selling just 12.75 million shares in this offering, valued between $765 million and $841.5 million.

Joseph Tsai, the retailer’s co-founder, owns 83.5 million shares, or 3.6% of Alibaba. Friday’s price range values his stake between $5 billion and $5.5 billion.

Mr. Tsai is selling 4.25 million shares, which could generate between $255 million and $280.5 million on IPO day.

In total, all of Alibaba’s officers and directors own 14.6% of the company. They are selling just 0.8% of the company, according to the filing.

Leslie Picker, Lulu Yilun Chen and Belinda Cao wrote for Bloomberg that the initial filing was less than Wall Street’s expectations but left room for the company to increase the price:

Even at the high end, the valuation falls below more optimistic estimates of Alibaba’s worth — analysts surveyed in July put its value at $187 billion, on average. That will give China’s largest e-commerce company room to raise the IPO price as it builds demand during meetings with fund managers, said Henry Guo, an analyst at JG Capital.

“This is below Wall Street’s expectations,” said Guo, who is based in San Francisco. “They prefer a smoother start so that they can push up the prices.”

Alibaba may temper its valuation, some analysts said in July, which could help it avoid the listing flop of Facebook. Those analysts forecast that Alibaba would value itself at about $154 billion, after applying a discount.

Facebook had a price tag of $104 billion at the time of its IPO in May 2012 and went on to lose half its market value as investors worried about slowing growth and the company’s mobile strategy. The stock has since recovered.

While Alibaba’s IPO is coming amid growth in China’s e-commerce market, investors now must weigh the risks of buying shares in the Hangzhou-based company. The Internet behemoth, whose marketplaces are comparable to those of EBay Inc. (EBAY) and Inc., has a governance arrangement that keeps insiders in control as well as an ownership structure that could face objections from the Chinese government.

No matter what the offering price, stakeholders will make a ton of money. It’s a huge capital raise, and there could be some concerns about overseeing Ma and his control of the company. But many believe that investors will pay for companies with growth potential and Alibaba has room to expand.

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