Alibaba Is Said to Move Toward an I.P.O. in the U.S.
By NEIL GOUGH
DealBook
New York Times
September 25, 2013, 4:07 am
Updated, 6:36 a.m. | HONG KONG – The Chinese Internet company Alibaba has ended talks with the Hong Kong stock exchange over an initial public offering and is now moving forward with plans to list in New York, a person close to Alibaba said on Wednesday.
Alibaba’s “dialogue with Hong Kong” has “come to the end,” the person said, declining to be named because the information was not public. The company is “now turning to the U.S. to start the listing process,” the person added.
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The company has yet to appoint underwriters for an I.P.O. or submit filings to sell shares in any market. Alibaba has, however, hired an American law firm to work on its offering and it plans to “be hiring banks soon,” the person said.
In its discussions over a potential listing — which, at as much as $15 billion, would be a huge victory for any stock exchange — Alibaba had proposed to officials in Hong Kong that the company’s 28-member partner committee be allowed to continue to nominate a majority of its board of directors.
Hong Kong discourages companies from organizing in a way that favors dual-class shareholding over individual shareholdings, or gives one shareholder a disproportionate say over how a company is run.
Hong Kong appears to have declined to make an exception in Alibaba’s case. A spokesman for the Hong Kong exchange declined to comment on Wednesday, citing company policy.
Losing the Alibaba I.P.O. to New York would be a major setback for Hong Kong, which had ranked as the world’s biggest market for new share offerings from 2009 to 2011, but has seen deal volumes slump in the last two years.
In a long post on his official blog on Wednesday, Charles Li, the chief executive of the Hong Kong Exchanges and Clearing, the stock market operator, leapt into the debate that has whirled around the city’s financial circles on the conditions attached to Alibaba’s proposed I.P.O.
“There has been a lot said and written about investor protection, share structures and voting rights in Hong Kong in recent weeks,” Mr. Li wrote in his blog. Without naming Alibaba, he admitted to having lost sleep weighing the various arguments for and against making concessions to the listing rules. “Whenever I try to focus on the issues,” he said, “I can’t get the voices out of my head.”
In the event of a conflict, the interests of shareholders in the Hong Kong exchange are secondary to the larger public interest, Mr. Li wrote. “It is in this context of the broader public interest of Hong Kong that I chose to make my contribution to this important debate,” he added.
David Neuville, a capital markets partner based in Hong Kong at the American law firm Cadwalader, Wickersham & Taft, said he was surprised by Alibaba’s apparent decision to abandon Hong Kong for New York.
“It is a substantial blow for the Hong Kong stock exchange, which is a profit-making business,” Mr. Neuville said.
Regarding Alibaba’s push for a board nominated by its partners, he said that the stock exchange “really decided to dig their heels in on this point,” adding, “Time will tell, but I’m not sure that prohibiting any type of arrangement that has the effect of concentrating power is necessarily a reasonable way to go.”
Dual-class and related share structures are permitted in the United States. Google, Facebook and The New York Times Company have dual-class listings, which give founders or family owners greater say over how a company is run.
Still, Alibaba does not intend to seek a dual-class listing. The company is “not going to come to the U.S. with dual-class,” the person close to the company said, but is “going to come looking for a way” to use its existing partnership model.
Alibaba was founded in 1999. Its 28-member partner committee was set up in 2010 and includes Jack Ma, the executive chairman, as well as Mr. Ma’s co-founders, top lieutenants and other long-serving senior staff members.
The partners own about 10 percent of the company, and the committee does not include SoftBank, the Japanese telecommunications company that owns 36.7 percent of Alibaba, or Yahoo, which has a 24 percent stake.
“What sets our partnership apart from the others is that this is not a mere profit-sharing mechanism, nor is it a vehicle of power to exert greater control over the company: Rather, it is a system that provides a driving force within the company,” Mr. Ma wrote this month in a letter to Alibaba employees. “Partners, as operators of the company, builders of business, carriers of corporate culture, as well as shareholders, are the most likely to adhere to the company’s mission and insist on long-term interests to create long-term value for customers, employees and shareholders.”
Analysts and investors expect Alibaba’s listing — if, when and where it happens — to be one of the biggest and most highly anticipated since Facebook raised $16 billion in May 2012.
Alibaba’s online businesses include Alibaba.com, which links overseas buyers with Chinese exporters; Tmall.com, which lets retailers connect with online shoppers; and the consumer-to-consumer retail Web site Taobao Marketplace.
Alibaba’s profit more than tripled in the first quarter of the year, rising to $668.7 million from $220.5 million in the period a year earlier, according to stock exchange filings. Quarterly revenue increased 72 percent, to $1.38 billion.
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