Alibaba Plans To Spin Off Parts Of Its E-commerce And Finance Empire
(CTN NEWS) – According to top executives, Alibaba plans to spin off some of its vast e-commerce and finance empires as separate businesses.
To make them more flexible and maximize their worth as the company emerges from regulatory crackdowns that have roiled Chinese tech sectors.
Alibaba CEO Daniel Zhang outlined an earlier this week revealed plan to divide Alibaba into six main groups as a prelude to some of its companies going public.
Alibaba CEO Daniel Zhang Announced To Split Alibaba Into Six Main Groups
Following several setbacks as authorities tightened their grip on the industry, the restructuring marks a new phase in Alibaba’s growth.
During a conference call, Zhang described Alibaba as “like a holding company that is the controlling shareholder of the business group companies.”
Alibaba’s CFO, Toby Xu, stated the company was going to continue to assess the strategic significance of group companies after they went public and decide whether or not to retain authority.
He declined to say when they would be made public.
“The market, we believe, is the best litmus test,” Xu said. “When each business group company is ready, they can pursue independent fundraising and IPOs.”
Since the restructuring was announced on Tuesday, the company’s stock prices in Hong Kong and New York have increased nearly 15%. By midday Thursday, the company’s Hong Kong-listed stock was up 0.9%.
After several difficult years, the plan and the recent return of Alibaba founder Jack Ma to China after months abroad signal a turning point.
Chinese authorities singled out Alibaba for scrutiny in a crackdown on technology and internet firms, halting Ant Group’s planned IPO in 2020.
Ma has kept a low profile and made few public appearances since November 2020, when he publicly criticised China’s regulators and financial systems during a speech in Shanghai.
Ant had intended to raise a total of $34.5 billion in what would have been the world’s largest initial public offering.
As Chinese authorities clamped down on the once-freewheeling technology industry, Alibaba was investigated and fined $2.8 billion for antitrust violations.
Alibaba’s financial affiliate Ant Group’s 2020 IPO has been halted because of a crackdown on technology and internet companies
The company’s divisions will be the Cloud Intelligence Group, Taobao Tmall Business Group, Local Services Group, Global Digital Business Group, Cainiao Smart Logistics, and Digital Media and Entertainment Group.
In addition to Taobao Tmall, each group may seek an initial public offering. Taobao Tmall will remain the single owner of Alibaba Group.
Zhang predicted that the restructuring would be challenging, but it would also “allow all of our businesses to become more agile, improve decision making, and enable faster responses to market changes.”
Among other things, the restructuring plan may allay previous antitrust concerns because, as Zhang explained, each Alibaba business unit would be empowered to make its own decisions and gather money separately.
According to a Moody’s Investor Service analyst note, “the looser connections between the business units are consistent with the regulatory stance of encouraging competition.”
Alibaba’s restructuring — the first of its kind in Chinese technology
Alibaba’s restructuring, the first of its kind in the Chinese technology sector, could also serve as a model for other companies, such as Tencent, which makes online games.
Tencent’s shares increased after Alibaba’s announcement on Monday.
According to CreditSights, “we believe that Chinese regulators could use Alibaba’s new organisational structure as a template for other Chinese Big Tech firms.”
According to Francis Lun, CEO of Geo Securities in Hong Kong, the company’s decision will allow the group to raise more capital soon.
However, the company may require assistance to stay competitive in mergers and acquisitions.
“You’d be a lightweight fighting against giants like Apple, Amazon, and Alphabet if you split into six business units,” Lun said.
He stated that the company’s e-commerce and cloud divisions were the only ones that were lucrative, and that the other units might fail in the long run.
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