Yang Yang On February 9, Alibaba Group's B2B listed company Alibaba (1688.HK) announced a trading halt to clarify speculations concerning transactions involving the company's controlling shareholder. Alibaba's announcement stated that the transaction might or might not affect the company and could possibly be price-sensitive information.
On February 16, an Alibaba senior executive mentioned that before the suspension, they had noticed some abnormal large-scale trading behaviors.
This period coincided with the critical negotiations between Alibaba and Yahoo.
Currently, there is no evidence linking these large transactions to the aforementioned negotiations between Alibaba Group and Yahoo. However, the appearance of such large transactions may indicate that investors have already anticipated significant changes in Alibaba.
Complete Listing
Our newspaper learned that on February 9, Jack Ma, Chairman of Alibaba's board, went from Hong Kong to Shenzhen to inspect a company he acquired in November 2010.
At that time, the industry generally speculated: Alibaba's trading halt was related to the rumored "Ma Yun's plan to privatize Alibaba" and the ongoing repurchase of shares from Yahoo.
Regarding this, the aforementioned Alibaba executive said that the overall transformation and upgrade of Alibaba's B2B business were continuously being discussed. The relationship between the privatization of the listed company and the overall listing was quite close, and overall listing was also part of Alibaba Group's medium- to long-term plan —— "definitely heading in this direction."
The feasibility of Ma Yun repurchasing shares increased with significant changes within Yahoo. Jerry Yang, who knew the most about Alibaba's business and value and was the biggest obstacle, resigned a month ago. The major resistance to Alibaba's repurchase has been removed. For Ma Yun, perhaps the spring of 2012 would be the best time to repurchase Alibaba's shares.
Analyst Qi Jianzhe from Analysys Mason believed that currently, the aggressive faction within Yahoo is increasingly taking a dominant position —— Yang's resignation along with original shareholders and board members reflects the impatience of some aggressive shareholders within Yahoo.
It was known that when Yahoo missed Microsoft's acquisition offer, Yahoo shareholders thought the board did not maximize shareholder interests. Over the past few years, as Yahoo's stock price kept declining, these investors have lost patience.
Yahoo's Consideration
A core issue in the entire negotiation was how to evaluate the equity of Alibaba Group.
One version of the folklore estimates this equity value at approximately $14 billion, while foreign media referred to it as a "deal involving a valuation of $17 billion."
Given the enormous potential for appreciation of Alibaba's underlying assets, this is why outsiders believe Yang was unwilling to sell this portion of his assets.
Now, it appears that other investors are also beginning to realize that future growth prospects may be more enticing —— on the 15th, foreign media reported that the reason for the breakdown of negotiations was "Yahoo's board investors wanted more assets."
The current Yahoo board is like the movie Rashomon: some want cash, others seek long-term returns, and still others need to meet their KPIs.
Third Point, holding about 5% of Yahoo’s shares, nominated Daniel Loeb, former NBCUniversal CEO Jeff Zucker, and former MTV Networks executive Michael Wolf as new director candidates to replace four recently resigned Yahoo directors. Among them, Loeb expressed dissatisfaction with the previous Yahoo directors' excessive reluctance to sell.
Yahoo's CEO Scott Thompson himself is in a predicament; Yahoo's main business has been continuously declining, requiring funds to revitalize its operations. His "best choice" is to sell Asian assets and use the proceeds to placate investor grievances and revitalize Yahoo's main business.
Jack Ma's opportunity stems precisely from this internal division and conflict within Yahoo. The root cause of this conflict is Yahoo's own business decline, which directly led Yahoo's investors to shift their focus to the Asian assets controlled by Yahoo, including China's Alibaba Group and Yahoo Japan.
An Alibaba executive revealed that Alibaba provided Yahoo with at least three to four repurchase proposals. In fact, throughout the process, Yahoo also continuously proposed plans, some of which supplemented and modified Alibaba's proposal, but only technically differed.
Jack Ma's Bargaining Chips
After Alibaba (1688.HK) suspended trading, analyst Qi Jianzhe from Analysys Mason believed that due to recent reports stating that Alibaba Group applied for a $3 billion syndicated loan from DBS, HSBC, Deutsche Bank, Mizuho, ANZ, and Credit Suisse, its primary purpose might be to repurchase part of the equity held by Yahoo in Alibaba Group. Therefore, the suspension could be related to significant developments in the share repurchase plan, including loan and cash-rich spin-off plans.
An employee inside Alibaba said that the suspension might be related to the transformation of Alibaba's B2B business —— the company is trying to upgrade from collecting "seat fees" to charging for "value-added services," which will inevitably impact the revenue performance of the B2B listed company. Delisting can help this business transform under conditions free from external scrutiny.
Alibaba executives revealed that Alibaba's B2B business was previously an information exchange platform, so its transformation and upgrade consider service categories and growth rates. It identifies universally demanded services based on needs, such as customs clearance and tax rebates, professional services. If these can become widely accepted paid services, they can follow this guideline to expand and upgrade the direction.
Alibaba's B2B business revenue declined due to last year's business rectification events, and the threshold continues to tighten, leading to further decreases in new member numbers. In fact, Alibaba's listed company's revenue has never been particularly encouraging, and its stock price fell from over HK$40 at the time of listing to less than HK$10.
From another perspective, this also provides an opportunity for Alibaba to repurchase assets at a low price.
Internet analyst Hong Bo pointed out that there is another repurchase scheme between Yahoo and Alibaba: Ma Yun sells all of the listed B2B business to Yahoo. The advantage of doing so is that this part of the business is still profitable, but B2B business has always served as Alibaba Group's "blood bank," providing the main source of cash flow. Alibaba may not be willing. From Yahoo's perspective, there is a risk of continued depreciation of the B2B business in the future, and Yahoo definitely has no interest in managing an Asian company with a large sales team.
Analyst Qi Jianzhe from Analysys International also believed that Alibaba Group would not be willing to exchange its core B2B business for group equity. For Yahoo shareholders, they prefer substantial cash dividends.
Although Alibaba executives told our newspaper that whether the companies under Alibaba go public as a whole or not is not directly related to Yahoo's exit, it is obvious that if Yahoo's investors are smart enough, they will not easily give up on Tmall, one of the most lucrative assets in China's Internet sector.
Hong Bo also believed that if Alibaba completes delisting and then lists other businesses as a whole, Yahoo could achieve its exit goal by reducing its stake in the new listed company. At that time, operations can be conducted according to market fair prices without complex negotiations. After delisting from Hong Kong, Alibaba could also choose mainland markets for overall listing. Although there are geographical advantages if choosing A-shares for overall listing, domestic listing conditions are very strict, and after exiting, Yahoo will find it difficult to convert RMB into USD and take it away. Therefore, overseas listing is likely chosen.
The greatest uncertainty currently comes from the sudden change in demands from Yahoo negotiators.
Analyst Qi Jianzhe from Analysys International believed that the sudden halt in the equity repurchase deal on February 15 might be because Yahoo shareholders hoped to exchange a certain operational asset of Alibaba for shares in the upcoming IPO, making this a long-term solution rather than a short-term one.
If we compare the assets of Alibaba after delisting bundled with Taobao, Tmall, YiTao, etc., to a pre-sale property in a bustling area, Yahoo shareholders seem to want to exchange a promissory note written by Ma Yun years ago for shares in this pre-sale property to share in future gains. Moreover, the future price of this pre-sale property might skyrocket, even exceeding the value of the promissory note itself —— can Ma Yun accept this?
(Contributions to this article were made by reporters Yang Ping, Liu Zhenzhen, and intern reporter Zeng Yourui.)