Mar 29, 2023
Alibaba CEO Says May Cede Control of Some Businesses Over Time
(Bloomberg) -- Alibaba Group Holding Ltd. will consider gradually giving up control of some of its main businesses, after completing a major overhaul to create six new companies that may debut on public markets.
China’s online commerce leader unveiled plans this week to split its $250 billion empire six ways, a historic restructuring that frees up divisions from e-commerce and media to the cloud to operate more autonomously and seek initial public offerings. Chief Executive Officer Daniel Zhang hosted a conference call on Thursday to explain the changes, but declined to specify a timeline for any IPOs except to say they will evaluate market conditions.
Alibaba has gained more than $30 billion of market value since Tuesday’s announcement, which also fired up a rally in fellow Chinese technology shares. It gained another 2.8% in Hong Kong Thursday.
The biggest overhaul in Alibaba’s history could serve as a model for a shake-up of the broader technology sector, achieving Beijing’s aim of curtailing increasingly powerful private firms while unlocking shareholder value.
That shuffle is regarded as addressing two imperatives: appeasing a government distrustful of Big Tech while assuaging investors traumatized by a years-long regulatory crackdown.
“This may mark the end of the two-year period where the regulators were really scrutinizing these big tech platforms in China. So this may be a signal that it’s time to move on,” said George Sun, head of global markets for Greater China at BNP Paribas. “The real test is whether these individual companies, these six companies, are going to be competitive on their own.”
For a liveblog of the call, click here.
Alibaba’s board will initially remain in control of each of the six but intends to reduce its role over time. The idea is to become more of an asset or capital backer than to intervene in their businesses, Zhang told analysts on the conference call.
“Of course the governance structures will be changing, but there will be business continuity across our range of different businesses,” he said.
The overhaul plan is also spurring hopes for Hong Kong’s IPO market. Initial public offerings by Chinese firms have slumped in Hong Kong and abroad since since mid-2021 as Beijing expanded a crackdown over several large companies and industry groups ranging from technology to education.
The financial hub’s advantages include easy access for foreign investors, while Beijing’s proximity can ease its policymakers’ concerns about oversight, according to analysts. While other Chinese conglomerates may follow Alibaba’s overhaul, mainland bourses could also attract some potential listings, they said.
The shift to a holding company structure is rare for major Chinese tech firms and could present a template for peers such as WeChat operator Tencent Holdings Ltd.
Xi Jinping’s administration had long criticized the influence of online platforms, worried that concentrating power and data among a few tech companies suppresses innovation and threatens the Party’s grip on power. Alibaba and Tencent invested in hundreds of startups over the years, often helping shape entire segments of the consumer internet from ride-hailing to grocery delivery.
Alibaba’s restructuring also marks a departure from the internet company’s traditional preference for keeping most of its operations under one roof, running everything from supermarkets to datacenters under the main Alibaba umbrella. Decentralizing the company’s business lines and decision-making power addresses one of Beijing’s primary goals during its sweeping crackdown. Another key priority is jumpstarting growth after years of Covid Zero restrictions depressed activity across the world’s No. 2 economy.
--With assistance from Sarah Zheng, Zheping Huang and Vlad Savov.
(Updates with share action and comments from the second paragraph)
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