China’s leading e-commerce company, Alibaba Group, is dangling a deal that might turn into one of the most significant IPOs in U.S.A history.
In a long-awaited move, Alibaba submitted papers for a first public offering of stock hoping to raise at least $1 billion, and dependent upon investor demand for its stock, Alibaba could try to even surpass the $16 billion that Facebook and its investors raised in its IPO two years ago.
One of the main reasons that Alibaba will probably set a new IPO fundraising standard is because one of its big shareholders, Yahoo Inc., is supposed to sell approximately 208 million shares as well.
Alibaba is considered one of the biggest internet companies with more than $150bn worth merchandise
changes on its platforms each year.
The company which began as a service link between Chinese suppliers and retailers abroad branched out, very successfully, into retail e-commerce.
Although it is little known abroad, it has launched two consumer-oriented services in the United States.
According to the company’s press statements the decision to go public has been motivated by the desire to become global as well as the need for increased transparency. It is aimed to help the company to continue to pursue our long-term vision and ideals.
For the moment Alibaba isn’t indicating how much stock will be sold in the IPO, and it isn’t setting a price range either. Those details will come out as the IPO progresses. The IPO is likely to take three or four months to complete before Alibaba’s shares start trading.
The rise of e-commerce in China has given millions of households easier and wider access to books, clothes and consumer electronics; shopping online has become even more popular when smartphones gave to Chinese people easy access to a computer and Alibaba established an online payment system under the name “Alipay”, which made things easier for the shoppers who didn’t have any credit cards.
One fact that is not well-known in the USA is that Alibaba makes more money than Amazon.com and eBay Inc. combined. Furthermore, the company is still growing rapidly as its network of online services such as Taobao, Alipay and Tmall covers an online Chinese market that has 618 million Web surfers, almost twice the size of the U.S. population.
Taobao is an Internet shopping bazaar comparable to eBay, Tmall is an online outlet for brands sold by major retailers, while Alipay is an electronic payment service just like eBay’s PayPal.
The biggest part of Alibaba is now owned by four shareholders:
-Yahoo, with a 23 percent stake
-Japan’s SoftBank Corp., holding a 34 percent stake
-Former CEO and co-founder Jack Ma who holds an 8.9 percent stake, and
-vice chairman and co-founder Joseph Tsai who holds a 3.6 percent stake.
Alibaba didn’t select an ideal period to go public. Many Internet company stocks which soared last year amid high hopes have dropped this year as investors reevaluate their prospects. An example of this situation is Twitter Inc.: Although it has hit a peak of $74.73 last year, its shares have lost more than half of their value.
Despite the nervous conditions for Internet stocks, the majority of analysts expect Alibaba’s IPO to generate at least $10 billion. Hamadeh predicts that the IPO will be priced at the level that gives Alibaba a market value of $195 billion. That fact would eclipse Facebook’s present market value of $150 billion.
The record for the richest IPO in the U.S.A is held by Credit and debit card processor Visa Inc. ($18 billion).
Alibaba started in 1999 with $60,000 in the apartment of a former English school teacher, Jack Ma, with no previous experience either in business or technology.
Since then it has blossomed into a testament to China’s economic history, with profits of $2.9 billion on revenue of $6.5 billion through the first nine months of its last fiscal year. That topped the earnings of $2.4 billion posted during the same period by Amazon and eBay combined.
Alibaba’s success has presented a financial crutch for Yahoo Inc., whose stake in the Chinese company is the main reason that its own stock price has been doubled in the past two years.
Yahoo is expected to sell 208 million shares, 40 percent of its Alibaba holdings, in the IPO; this is part of an agreement reached last year. The divestiture is required to generate a windfall of approximately $10 billion that will help define Marissa Mayer’s legacy at the Sunnyvale, California Company. Yahoo had paid $1 billion for its first stake in a 2005 deal which was made by two of Mayer’s frequently maligned predecessors, Jerry Yang and Terry Semel.
Mayer could distribute most of the Alibaba proceeds to Yahoo’s stockholders by buying back millions of the company’s shares or paying dividends. She mainly bought back Yahoo stock after the company gained more than $7 billion from a 2012 sale of Alibaba stock.
Or, Mayer could put aside some of the Alibaba money to finance an acquisition that would raise Yahoo’s audience and its digital advertising sales. Mayer will be probably tempted to do something daring, as she has been unable to increase Yahoo’s revenue during her two-year reign.
Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and Citigroup will underwrite the IPO.
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