Alibaba Group Holding Ltd’s (阿里巴巴) talks with the Hong Kong stock exchange for an initial public offering (IPO) broke down after it sought partnership control of board nominations, and the company is moving toward a US listing, according to a person familiar with the matter.
China’s largest e-commerce company is seeking US law firms to help with an IPO and has not hired banks yet, said the person, who asked not to be identified because the process is private.
Alibaba declined to comment on developments in an e-mail yesterday.
The company wanted its partners to nominate most of the board, a person familiar with the matter said last month.
Investment banks have valued Alibaba, founded by former English teacher Jack Ma (馬雲), at as much as US$120 billion, which would make it the third-biggest Internet company behind Google Inc and Amazon.com Inc based on market capitalization. Losing the Alibaba IPO would be a blow to Hong Kong, which does not allow dual voting classes on new listings and has not hosted a first-time share sale of more than US$4 billion since October 2010.
“Jack Ma really insisted on the partnership structure,” said Billy Leung, an analyst at RHB Research Institute Sdn in Hong Kong. “If you give it to them, then you give it to everyone. Alibaba has been waiting for so long, they just said let’s go to the US.”
Alibaba could raise about HK$100 billion (US$12.9 billion) in an initial sale, Ernst & Young LLP said on June 28. That would make it the world’s biggest IPO since Facebook Inc raised US$16 billion in May of last year, and Hong Kong’s largest since AIA Group Ltd’s US$20 billion sale in October 2010, according to data compiled by Bloomberg.
Allowing Alibaba’s partnership to control board nominations would enable Ma, who owns 7.4 percent of the stock, and his management team to maintain control.
Yahoo Inc owns about 24 percent of Alibaba and Japan’s SoftBank Corp about 37 percent, the companies said separately in July.
Hong Kong’s bourse does not allow share classes with different voting rights, as the US does.
“They can go to the US and accept the US environment with more stringent reporting requirements and a class action litigation system and benefit from the dual-class voting structure,” said David Webb, founder of local governance watchdog Webb-site.com and a former director of the exchange.
Under Alibaba’s partnership proposal, all shareholders would still vote on the proposed directors, with partners being able to nominate an alternate if shareholders reject a candidate, the person familiar with Alibaba’s thinking said. No other investor rights would be changed, the person said.
Deals involving company executives, major expenses and compensation would be voted on by all shareholders, the person said.
“This is not a mere profit-sharing mechanism, nor is it a vehicle of power to exert greater control over the company,” Ma said in a Sept. 10 e-mail to employees explaining the partnership. “We also hope that the partnership system, operating based on a foundation of transparency, can shield the company’s long-range development plans from the short-term profit seeking trends of the capital market.”