U.S.-listed shares of Alibaba Group (NYSE:BABA) surged more than 14% on Tuesday after the Chinese conglomerate announced plans for the biggest restructuring in the company’s history.
The Chinese e-commerce giant said it would break its business down into six units and explore fundraisings or listings for nearly all of them, marking an unprecedented overhaul following promises by the Chinese government to ease its regulatory clampdown on internet companies and spur growth in the private sector.
New Structure to Unlock Shareholder Value
Following the revamp, Alibaba’s business will be divided into six divisions, including Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics Group, Global Digital Commerce Group, and Digital Media and Entertainment Group.
Five of these business units will “have the flexibility to raise outside capital and potentially to seek their own IPO.” Apart from the online retailer Taobao Tmall, each division will be spearheaded by its own CEO and board of directors, the company said. Taobao will continue operating as a wholly owned unit of Alibaba, though it would reduce its middle and back office job positions as part of the revamp.
The split would also ease regulatory pressures on Alibaba whose business has been in regulators’ crosshairs for a couple of years, and alleviate concerns that the conglomerate has lost the potential to keep growing.
"The original intention and fundamental purpose of this reform is to make our organization more agile, shorten decision-making links and respond faster," Alibaba CEO Daniel Zhang wrote in a letter to staff, according to Reuters.
Zhang said each unit will have to focus on tackling the rapidly changing market trends and each Alibaba must “return to the mindset of an entrepreneur” as part of the overhaul. He will continue serving as chairman and CEO of Alibaba Group, and will also become CEO of Cloud Intelligence Group.
Tara Hariharan, managing director of global macro research at NWI Management, said the overhaul decision could also be a part of a fallout of the U.S. crackdown on Chinese tech companies that gave rise to national security concerns over TikTok.
"By paving the way for Alibaba's various new units to list, the Chinese government may be signalling less hostility towards its tech giants as a placatory message to U.S. and international investors," said Hariharan.
Restructuring Coincides With Ma’s Return to China
Alibaba’s move comes just a day after its co-founder Jack Ma returned to China after spending more than a year outside his home country and keeping a very low profile since the government started cracking down on internet companies in 2020.
Ma’s return to the public is expected to further ease worries in China’s private sector as the government attempts to rejuvenate the country’s economy damaged by three years of stringent zero-Covid restrictions.
The first news of Ma’s reappearance emerged on Chinese social media early on Monday and later it was confirmed that the billionaire had visited a school he and other Alibaba officials founded in the company’s home city of Hangzhou in 2017. Ma also visited the newspaper South China Morning Post (SCMP), which is also owned by Alibaba.
Ma, a former English teacher, discussed hot topics such as the artificial intelligence (AI) chatbot ChatGPT during his school visit and said he would like to return to teaching one day.
The publicity of Ma’s return to China and Alibaba’s restructuring signal a potential end to the tech sector crackdown in China.
Ant IPO Back on the Table?
Analysts believe that Alibaba’s planned reorganization would likely bring back attention to the failed initial public offering (IPO) by its fintech firm Ant Group in 2020. Ant, best known for its payment platform AliPay, is 33% owned by Alibaba.
“I truly believe [Alibaba is] aiming for a bigger target,” said Dickie Wong, Executive Director of Kingston Securities. “In terms of the bigger picture, obviously would be Ant Group [being] re-introduced into the equity market,” he said in an interview with CNBC.
Wong said Alibaba’s overhaul is likely the group’s biggest goal at the moment, adding that Ant’s long-awaited listing will not happen in the near future, though “there’s big hope” for a deal soon.
Earlier this year, Ant won approval from Chinese regulators to expand its consumer finance business, raising hopes among investors that the fintech company could be closer to settling its regulatory issues.
Brendan Ahern, CIO of KraneShares, said investors will likely be highly interested in Ant’s IPO, even though that plan wasn’t mentioned in Alibaba’s announcement.
“The one part about the press release that I think the investors will be asking for is the lack of talk about Ant Group,” Ahern said.
In January, Ant said it had no plans to launch an IPO due to the company’s focus on its “business rectification and optimization,” Ant’s spokesperson said at the time.
Ant also said that Ma, who founded the company, was no longer in control of its operations following a series of shareholding tweaks that resulted in Ma giving up the majority of his voting rights. The record-breaking $37 billion IPO was suspended in November 2020 by Chinese regulators, resulting in a two-year forced restructuring of the fintech firm.
In 2021, Chinese regulators imposed a record fine on Alibaba, placing extreme pressure on its stock in the following period.
Conclusion
As Alibaba shares were down 75% between October 2020 and October 2022, the management was forced to react and make some of the most important decisions in the company’s history.
Alibaba will now split into 6 separate business units, a move that could see BABA stock significantly outperform the market in the coming weeks and months, according to Morgan Stanley analysts.
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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.