In the past two years, Alibaba has actually been solving two problems: one is to regain control, and the other is business transformation. February 21st of these two years can be called "the day of turmoil" for Alibaba. On February 21, 2011, then CEO of Alibaba (01688.HK) Wei Zhe and COO Li Xuhui resigned due to the "fraud scandal", causing a great stir. On February 21, 2012, Alibaba B2B Company announced that the group had made a privatization offer, proposing to repurchase its shares circulating overseas at a total price of more than HK$19 billion, with each share priced at HK$13.5. This price was the IPO issuance price of Alibaba about five years ago, which was 60% higher than the average price of the last 60 trading days. The turmoil arose again, with voices clamoring, but the climax was far from coming. Each party calculates their own way. Whether Alibaba's investors have lost or gained depends on how different stakeholders calculate the accounts. Not long after the "privatization announcement" was issued to the public, Jack Ma sent an email to the "internal company". The main content of the email was twofold: first, privatization is "responsible to shareholders"; second, "some people say we only raised $1.7 billion when we went public, but privatization will cost more than $2 billion, which seems like a losing deal. Some suggested we could buy back the shares at a lower price. But this is not Alibaba's style." In fact, from a purely market perspective, the 60% premium for this privatization means Alibaba will pay approximately HK$7 billion more. A comparable recent case is that just a few days earlier, Chen Tianqiao announced the privatization of Shanda Interactive Entertainment listed on NASDAQ, with a premium of about 26%. Guotai Junan analyst Deng Jingjing told *Wealth Weekly* in an interview, "From the total amount Alibaba needs to pay for this repurchase, they are actually making a loss. After all, Alibaba distributed dividends totaling HK$2.11 billion twice during its listing period, which was the largest scale in internet history. If we also consider the initial listing costs, the cost paid by Alibaba is actually not small." However, some opponents also have their own ways of calculating: after more than four years, Alibaba's stock price returned to the starting point, meaning that if someone bought the stock at the time of issuance and held it until now, he would have received no gains over five years; considering inflation, this investor would actually incur a loss. But supporters have another calculation method: On the day of Alibaba's listing, the Hong Kong Hang Seng Index was nearly 30,000 points, and as of now, it has fallen by nearly 28%. From this angle, Ma's repurchase of shares at the issue price is still beneficial to investors. On November 6, 2007, Alibaba opened at HK$30 and reached a high of HK$41.8. With the financial crisis, it fell to a low of HK$3.48, and before this suspension, the stock price was HK$9.25. At the beginning of the listing, Ma once said boastfully: "Many investors told me, I missed Google, I cannot miss Alibaba." Some investors strongly favored Alibaba due to a hidden expectation that excellent assets such as Alipay and Taobao under the group would be injected. However, not long after the listing, Alibaba clearly stated at every annual general meeting that it would not inject Taobao into the Hong Kong-listed company. This expectation seemed to be a one-sided wish of those who were bullish. From 2007 to 2011, Alibaba achieved a net profit of RMB 6.125 billion. During this period, it successively acquired two American companies, as well as most of the equity of Wanwang and Yidatong. According to Alibaba's 2011 annual report, its cash and bank deposits totaled RMB 11.65 billion, of which fixed-term deposits exceeding three months amounted to RMB 8.2 billion. Behind the extremely ample cash, it can also be said that the efficiency of fund utilization was not high. Before going public in 2005, Ma once had a saying about his business: "Big brother Alibaba is a mud-legged guy, younger brothers and sisters need him to support them for schooling. Taobao is a sister, with a lively personality, she can take big brother's money to buy flower skirts, and she will go to Fudan University in the future. The third son Alipay is in elementary school, but he is the most ambitious, and big brother decided to spare no expense to send him to Harvard in the United States." Some market analysts questioned whether the money of Alibaba's listed company was used to support other enterprises under the group. When other enterprises grew strong, the listed company would delist instead. However, there is no evidence from the listed company's financial statements pointing to this. Strategic move against Yahoo! Ma spent HK$14.7 billion, but at the same time obtained no less than this amount of free cash flow. "The B2B business is already declining, if not privatized, the outcome would not be good either," the chairman of a Shanghai-based internet listed company frankly told *Wealth Weekly*. Qingke Research Center analyst Zhang Yanan provided several reasons for this privatization when interviewed by *Wealth Weekly*: "Firstly, Alibaba timely listed during the rising period of the B2B industry, using secondary market financing to support the development of other enterprises under the Ali Group, and today, its mission has been completed; Secondly, the large Ali Group faces enterprise reorganization and integration; Thirdly, Alibaba's performance is generally average, and during the reorganization process, it might get worse in the short term, privatization is not a bad choice; Additionally, some major shareholders of Alibaba are also beneficiaries." However, this still does not fully explain why Ma chose privatization rather than other capital operations on the B2B platform, such as mergers and acquisitions or asset injections? Although Alibaba announced that it was merely for long-term layout of B2B business, almost everyone in the industry speculates that this move is to counter Yahoo!. In the current equity structure of Alibaba, Yahoo! holds nearly 39% of the shares. The key is what Ma will use to redeem himself? According to the joint announcement, Alibaba borrowed a total of $3 billion (approximately RMB 19 billion) from six banks including Australia & New Zealand Banking Group, Credit Suisse Singapore Branch, DBS Bank, Deutsche Bank Singapore Branch, HSBC, and Mizuho Corporate Bank Hong Kong Branch, while the actual repurchase of shares required around RMB 15.3 billion. "So, Ma spent HK$14.7 billion this time, but on the other hand, he obtained HK$11.65 billion in cash and deposits from Alibaba's account, and there is still part of the loan balance available for支配. He can prepare chips when negotiating with Yahoo!" Guotai Junan analyst Deng Jingjing said in an interview with *Wealth Weekly*, "If this privatization succeeds, the most likely way for Ma to repurchase shares from Yahoo! will be 'cash + sub-group equity', because Yahoo! still owns many assets in Asia, considering Yahoo!'s current poor situation, they will not easily give up their shares in Alibaba." Analyst Feng Po from ChinaVenture also told reporters, "Asset + Cash" transaction mode remains an ideal choice for both parties. For Yahoo!, holding quality assets of Ali for long-term benefits is still desirable, and whether holding parent or subsidiary companies makes no substantial difference; for Ma, giving up subsidiaries' shares to gain control of the group might be an acceptable solution. Therefore, after Alibaba B2B goes private, it will help facilitate the smooth progress of the Yahoo! repurchase deal. "Ma's move looks very clever, but I analyze, it may also be the only way," the chairman of a Shanghai-based internet listed company said. "Alibaba has actually been solving two problems in the past two years: one is to regain control, and the other is business transformation. There is no need to talk about the struggle for control. Alibaba spares no effort to redeem itself, even resorting to reverse acquisition. There is a key issue here: to grasp the initiative in valuing Alibaba's assets, otherwise it would be out of control." "The second problem is that with the continuous opening up of the market and increasing competition, the challenges for Alibaba's entire system of B2B, C2C, B2C are getting bigger and bigger. It is necessary to upgrade customer experience. So Alibaba urgently proposed building an e-commerce ecosystem. Then the business platforms he continuously split off need to be completely restructured." "This involves two parts: listed companies and non-listed assets. If this matter is handled by the listed company, it is equivalent to making all assets transparent, facing Yahoo! would be like lambs entering the tiger's mouth. Therefore, the only option is to handle it non-transparently, so Alibaba must delist." When *Wealth Weekly* reporter interviewed Shen Jianming, former vice president of Alibaba and Yahoo! China, she declined to answer, calling the question "too sensitive." Ma is not the first time he has racked his brains or even resorted to drastic measures for company control. During Alibaba's continuous growth, Ma constantly diluted equity to employees, and early investor SoftBank also continuously increased its influence, resulting in SoftBank's equity rising from 20% to 29.3%, while Ma's holdings were reduced to below 5%. And on the control structure of Alipay, which he considered as "liver", Ma and SoftBank's Son Masayoshi had fundamental conflicts. Ultimately, Ma, citing national policy, "secretly transferred" Alipay to a company controlled by senior management, thus triggering a fierce controversy about the integrity issue of VIE (foreign capital agreement control). "This privatization will greatly damage the credibility of Chinese concept stocks," the executive said, "but from the capital perspective, it is reasonable and justified." "Wisely acquiring Alipay - privatizing B2B - repurchasing Yahoo!'s shares." Zhang Lijun, Chairman of the Board of Directors of the First Video Group and Chairman of the Development Council of China APEC, believed that these are the three steps against capital, "this gives us enlightenment: in the early stage of the company, to obtain funding support, giving up some interests is a wise move for entrepreneurs, but don't forget that the future cost may be huge." (Mubai, Cai Jun / Text) Share to: Related Special Feature: Alibaba plans to privatize B2B listed company special feature Related Reports: Alibaba Group's net profit in the 2011 fiscal year increased seven times compared to 2010 Alibaba experienced abnormal activity involving nearly 160,000 shares in three days: possibly voting for privatization Critical moment of privatization: dissecting Alibaba's chessboard Sina Technology Official Weibo Recommend | More