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Ma says so

22 February 2012 By Wei Gu

Jack Ma may have failed to buy back a stake in his e-commerce group Alibaba from U.S. partner Yahoo, but he has at least found a fallback plan. Ma has offered $2.5 billion to take his Hong Kong-listed unit, Alibaba.com private. The premium, 46 pct to the company’s last price before the deal was announced, is decent, and minority investors have no better options. But it still looks opportunistic.

Alibaba.com shares closed just two percent below the offer price of HK$13.50 a share after the announcement, suggesting investors aren’t spoiling for a fight. No-one else can bid given Alibaba.com’s 27 percent free float, and the company said it won’t offer a better price for at least a year. Sluggish fourth-quarter revenue doesn’t bode well for a quick turnaround. And there is not a big enough shareholder to block the deal single-handedly.

Minority shareholders aren’t toothless. They can veto the buyout with 2.7 percent of the total outstanding votes, or 10 percent of the public shareholders. They have some reason to seek a better price, since the shares are 80 percent below their 2007 highs. Hong Kong tycoon Richard Li’s failed battle to take his telecoms group, PCCW, private in 2009 shows that buyouts by management and founders aren’t always a sure-fire success.

Ma’s offer looks like a bet that Alibaba.com’s business woes are temporary. He may be right. The division is to some extent suffering from a setback in global demand and tight credit conditions at home. China still has huge potential for business-to-business e-commerce, which is in its relative infancy, and Alibaba is a giant in the market.

The risk is that Ma will dent his track record with the capital market. He is offering no more than the initial public offer price in 2007. That matters because Taobao, the real crown jewel of the parent Alibaba group, has long been mooted as a big future IPO. Many investors hoped Ma would inject it into Alibaba.com one day. They may now be reluctant to pay up next time he comes calling.


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