Question

In 2013 senior managers at Alibaba, China’s largest e-commerce enterprise, decided that it was

time to take the company public and offer its shares for sale to retail and institutional investors.

Alibaba was founded in 1999 by a former English teacher, Jack Ma, with just $60,000 in capital.

Often described as a fusion of Amazon and eBay, by 2013 Alibaba was already the world’s

largest online e-commerce company. In 2012, transactions at its online sites totaled $248 billion,

more than those of Amazon and eBay combined. Driven by rapid growth in China’s online

shopping market, projections called for the company to reach online sales of $713 billion by

2017.

Ma and his colleagues had several motives for the IPO. First, they wanted to raise capital to

finance the infrastructure investment required at a company that was growing at breakneck

speed. Second, publicly traded shares would give Alibaba a currency that it could use to acquire

other enterprises (by offering its shares in exchange for the shares of an acquired company).

Third, a public market in Alibaba shares would be a major liquidity event for the large number of

Alibaba employees who held stock in the enterprise. It would enable them to more easily sell

shares in order to raise cash for other purchases.

Initially, Alibaba considered doing an IPO in Hong Kong. The choice made sense. Hong

Kong has a large and liquid stock market that attracts investors from all over the world.

However, while Hong Kong is part of China, it retains its own legal system. Hong Kong’s stock

exchange has a “one share one vote” requirement. Ma and his colleagues were opposed to this.

Even though they would hold only a minority of shares after the IPO, they wanted to retain the

ability to nominate more than half of the company’s board of directors, ensuring that they

maintained control over the management of the enterprise.

Alibaba entered into negotiations with the Hong Kong stock exchange to see if the rules could

be changed, but to no avail. As it became increasingly apparent that the Hong Kong exchange

was unwilling to change its rules in a timely manner, Alibaba made inquiries to the New York

Stock Exchange (NYSE) and the U.S. Securities and Exchange Commission (SEC). The NYSE

and SEC indicated that they would have no problem with Alibaba’s partners retaining control

over more than half of all board seats.

Alibaba realized that an offering on the NYSE would have other advantages beyond retaining

control of the board. The NYSE is the largest and most liquid exchange in the world. The recent

successful IPO of Facebook and Twitter had demonstrated that U.S. investors had an appetite for

Internet offerings. Demand for Alibaba shares was expected to be high, raising the possibility

that Alibaba might have a record-setting IPO. Moreover, if its shares were listed on the NYSE,

this might make it easier for Alibaba to subsequently use those shares to acquire U.S. and other

foreign enterprises, giving Alibaba a bigger global footprint.

The biggest obstacle standing in the way of a U.S. listing was the Chinese government–

imposed limits on foreign ownership of Chinese technology businesses. Alibaba was able to

circumvent these limits by establishing a complex corporate structure in which investors would

actually own shares in a Cayman Island entity, Alibaba Group Holdings, which has contractual

rights to all of the earnings of Alibaba China, but no ownership interest in the Chinese entity,

which would continue to be owned by Ma and his partners.

The IPO took place on the NYSE on September 18, 2014. The initial offering price was $68 a

share, but demand was so strong that Alibaba’s shares opened at $92.70. Alibaba sold 368

million shares in the offering, or about 15 percent of the company. The IPO raised $25 billion for

Alibaba, $6 billion more than originally estimated, and valued the company at $231 billion,

making it the largest IPO in history

1.What were the legal, financial, and strategic advantages to Alibaba of undertaking its IPO in New York?

2. Because the IPO was undertaken in New York, does this make Alibaba an American enterprise?

Answer 1

1)

The key advantages for Alibaba to list in the US advertise were as per the following:

The legitimate bit of leeway was that the NYSE and SEC had no administrative or lawful issues with Alibaba's accomplices holding command over the greater part the board. The budgetary bit of leeway was that the NYSE is the biggest and the most fluid stock trade on the planet. The US financial specialists have a craving for web contributions.

The financial specialists have incredible trust in US controllers and would cheerfully put resources into Alibaba or any organization recorded in NYSE. This would give them access to a bigger money related base. The vital advantages were that Alibaba could hold command over the board.

Likewise deliberately, Alibaba when recorded in NYSE can without much of a stretch exchange their offers to procure organizations the US. This will help Alibaba to get a worldwide impression. To finish up Alibaba picked the US to stay with control of the.

2)

Posting Alibaba in US securities exchange NYSE doesn't make it an American venture. A complex corporate structure was made to list Alibaba on the US advertise. The China government forces limitations on outside responsibility for innovation organization.

The Listing in US stock trade was finished by Alibaba by giving portions of a Cayman Island element. Alibaba bunch property which reserve all options to profit of Alibaba China however no possession enthusiasm for the Chinese substance. The Chinese element would be claimed by Ma and accomplices.

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