Alibaba to split into six in radical overhaul

Beijing/Hong Kong: Alibaba is planning to split into six business units in a radical break-up that comes after a crackdown by Beijing on the country’s tech giants.

The company said the shake-up, the biggest in its history, would put a separate chief executive and board in place for each unit and that each could list publicly. Its announcement came just a day after Alibaba’s founder Jack Ma returned to mainland China, a trip Beijing hopes will boost investor confidence that it has healed ties with the country’s private sector.

Over the past two years Alibaba has had to contend with a record $2.8 billion fine by Chinese regulators for monopolistic behaviour, as well as the country’s stuttering economic growth and a rush of new ecommerce competitors.

Two people close to the matter said Alibaba presented its restructuring plan to Chinese regulators before announcing it publicly and received positive feedback. One person close to the ecommerce group said that while no formal demands were made for the split, regulators remained keen to see China’s tech giants slim down their empires.

The group said the revamp, in which Alibaba itself would become a holding company, would “unlock shareholder value and foster market competitiveness”. Alibaba’s shares have lost more than 70 percent of their value since Ma made a 2020 speech criticising the government. In the subsequent crackdown on China’s largest tech groups, the IPO of Ant Group, Alibaba’s fintech arm, was suspended.

Alibaba now has a market capitalisation of about $220 billion and its New York-listed shares gained more than 9 percent in premarket trading following news of the shake-up. Under the restructuring, Alibaba’s six new business groups will be dedicated to cloud computing, ecommerce, local services, logistics, digital commerce and media.

“The market is the best litmus test, and each business group and company can pursue independent fundraising and IPOs when they are ready,” chief executive Daniel Zhang said in a letter to employees.

“At 24 years of age, Alibaba is welcoming a new opportunity for growth,” he added. Zhang will remain as chief executive and chair of the Alibaba holding group and head up its struggling cloud business which he took over in December.

Alibaba’s main moneymaking units — its Taobao and Tmall ecommerce platforms — will remain wholly owned by the main company. Louis Tse, managing director at Hong Kong-based Wealthy Securities, said that if the group’s different businesses were spun off into different listings, “you’ll get a higher market value”.

Wang Qi, co-founder of boutique fund MegaTrust Investment (HK), added that “the new structure may help Alibaba deflect some of the regulatory pressure such as that related to anti-monopoly”.

The break-up will set Alibaba on a similar path to its ecommerce rival JD.com, which has retained a controlling stake in a diverse set of businesses. Each unit has gone on to raise outside capital, with several already listed in Hong Kong.

Alibaba’s chief rival Tencent has also been slowly divesting stakes it holds in major Chinese groups. A senior manager at Alibaba said that all of the company’s six business groups had been operating separately for several years and had plans for IPOs in the short term.

“This statement is an open admission of this reality, no more hiding,” said the manager. Goldman Sachs analysts estimate the group’s ecommerce business holds the vast majority of its value, worth about $103 a share, followed by Ali Cloud at $16 a share and its international business at $12 of value.

The investment bank’s analysts estimated that all the businesses together were worth $137, a premium to Alibaba’s Monday closing price of $86.