Alibaba plans to split its business into six entities that can seek an initial public offering on their own
Alibaba’s biggest restructuring in more than twenty years could prove contagious and Tencent should take note. The $460 billion video game giant also operates in sensitive areas such as online media, cloud computing and mobile payments.
If Alibaba’s approach ends up pleasing both shareholders and regulators, it will be hard to resist.
The Chinese e-commerce group is splitting into six units, some of which could then be taken public or sold.
That should add value to already tired shareholders and please regulators and politicians who want to control strategic business units. Other tech giants like Tencent could follow suit.
The restructuring will give each of Alibaba’s six divisions, which include cloud computing, gaming and logistics in addition to its core commerce business, its own chief executive and board of directors.
More importantly, each division will have the ability to „pursue independent fundraising and IPOs,” according to chief executive Daniel Zhang, who will remain at the helm of holding company Alibaba Group.
Following Tuesday’s announcement, investors boosted the New York-listed company’s market value by nearly $23 billion, or 10%, to $250 billion.
After years of regulatory requirements and covid lockups, Alibaba shares now trade at a historic low of less than 10 times projected earnings (according to Refinitiv forecasts) and half the five-year average and below rivals JD.com, PDD and Tencent.
A breakup could unlock value quickly: Citi analysts estimate that Alibaba’s two most valuable businesses – domestic e-commerce and cloud computing – are worth a combined $222 billion, meaning investors place little value on the rest.
Loss-making divisions such as online video could be sold to a competitor, while more promising businesses such as the logistics division could be floated or receive money from private backers.
The restructuring is also likely to please Beijing. Party officials are increasing their political influence over private companies, especially those in sensitive industries.
State vehicles have already acquired so-called golden shares – a 1% stake that typically comes with board representation and/or veto rights over key business decisions – in two of Alibaba’s onshore units.
But regulators might be happy to see Alibaba’s more sensitive businesses, such as its cloud intelligence unit specialising in data analytics and artificial intelligence, separated from the rest and possibly even relisted on the mainland.