Chinese e-commerce giant Alibaba Group Holding Ltd. is likely to go public in the United States after its discussions with Hong Kong stock exchange foundered. Analysts estimate Alibaba to be valued at above $80 billion. It will be the most sought after tech listing after Facebook Inc (NASDAQ:FB)’s IPO last year. Alibaba dominates Chinese e-commerce space with 80% market share through its platforms Taobao, Tmall and Qyer.
Sources familiar with the matter told Juro Osawa of The Wall Street Journal that Alibaba’s IPO could happen in the first half of the next year. It will start a race between the New York Stock Exchange and Nasdaq for the IPO. Twitter Inc., which is planning to go public, has chosen the New York Stock Exchange over Nasdaq.
What went wrong between Alibaba and Hong Kong?
Alibaba’s decision to walk away from the Hong Kong bourse is a big blow to one of Asia’s biggest stock exchanges. Alibaba wanted its partners including Jack Ma, who stepped down earlier this year, and other senior members of management to retain some control over board nominations even after the company goes public. Alibaba proposed that its 28 partners will nominate most of the board members, and put forth their nominations for shareholder voting. The Hong Kong stock exchange said these terms will grant too much power to Jack Ma and other partners who barely own 10% of the company. That is against Hong Kong stock exchange’s policy of treating all shareholders equally.
The Hong Kong exchange couldn’t accept Alibaba’s terms. Had it accepted, other companies going public at the exchange would also have demanded special rights. Japan’s Softbank Corp (PINK:SFTBF) (TYO:9984) owns a 35% stake in Alibaba, while Yahoo! Inc. (NASDAQ:YHOO) owns 24% of the Chinese company. Yahoo! Inc. (NASDAQ:YHOO) is also interested in selling some of its shares at the initial public offering.
Alibaba partners to have greater rights after US listing
After negotiations with Hong Kong exchange proved unfruitful, Alibaba started preparing for the U.S. IPO. Listing the company in the United States will give Jack Ma and other partners the right to maintain a tight grip over board nominations. In the U.S., Alibaba can choose a partnership structure which will allow it to nominate a majority of its board members. Or, it can opt for a dual-class voting system like Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB). In the dual-class system, Alibaba can issue two classes of shares having different voting rights. It will give Alibaba partners greater say in shareholder votes. Hong Kong exchange doesn’t have dual-class voting system.
According to sources, the Chinese company has started working with a U.S. law firm on the New York listing. The company is expected to hire banks soon.