03 Jun WHY DID JACK MA DECIDE IT WAS TIME TO TAKE ALIBABA PUBLIC?
The NYSE and SEC indicated that they would have no problem with Alibaba’s partners retaining control over more than half of all board Seats. Alibaba realized that an offering on the NYSE would have other advantages beyond retaining control of the board. The NYSE is the largest and most liquid exchange in the world. The recent successful IPO of Facebook and Twitter had demonstrated that U.S. investors had an appetite for Internet offerings. Demand for Alibaba shares was expected to be high. raising the possibility that Alibaba might have a record-setting IPO. Moreover. if its shares were listed on the NYSE. this might make it easier for Alibaba to subsequently use those shares to acquire U.S. and other foreign enterprises. giving Alibaba a bigger global footprint. The biggest obstacle standing in the way of a U.S. listing was the Chinese government-imposed limits on foreign ownership of Chinese technology businesses. Alibaba was able to circumvent these limits by establishing a complex corporate structure in winch investors would actually own shares in a Cayman Island entity. Alibaba Group Holdings. which has contractual rights to all of the earnings of Alibaba China. but no ownership interest in the Chinese entity. which would continue to be owned by Ma and his partners. The WO took place on the NYSE on September 18. 2014. The initial offering price was $68 a share. but demand was so strong that Alibaba’s shares opened at $92.70. Alibaba sold 368 million shares in the offering. or about 15 percent of the company. The IPO raised $25 billion for Alibaba, $6 billion more than originally estimated, and valued the company at $231 billion, making it the largest IPO in history. Sources: S. D. Solomon. “Alibaba laveston Will Buy a Risky Corporate Structure•” Jha New York limes. May 6, 2014; T. Demos and J. Osawa. “Alibaba Debut Makes a Splash,” The Rill Sow Joinal. September 19. 2014: D. Thomas and E. Beano, “Alibaba’s Choice of CS IPO Spurred by Rivals. Hoag Kong Impass.” Reuters. March 19, 2014.
Case Discussion Questions
I. Why did Jack Ma decide it was time to take Alibaba public?
2. Why do you think the management of Alibaba decided against doing the IPO in China’s main stock market. Shanghai? Why did they ultimately decide against Hong Kong?
3. What were the legal. financial. and strategic advantages to Alibaba of undertaking its IPO in New York?
4. Because the 1PO was undertaken in New York does this make Alibaba an American enterprise?
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