Bloomberg News

Alibaba.com Jumps Most in 4 Years on $2.5 Billion Buyout Bid

February 22, 2012

(Updates with analyst comments in third paragraph.)

Feb. 22 (Bloomberg) -- Alibaba.com Ltd., China’s biggest corporate e-commerce site, jumped the most in more than four years after its parent company bid as much as HK$19.6 billion ($2.5 billion) to buy out minority shareholders.

Alibaba Group Holding Ltd., run by billionaire Jack Ma, offered HK$13.50 a share for the 27 percent it doesn’t already own in Alibaba.com, according to a statement yesterday. Shares climbed 43 percent, the most since November 2007, to HK$13.20 at the 4 p.m. close of trading in Hong Kong.

Ma is in separate negotiations with Yahoo! Inc. to buy the 40 percent stake the U.S. company owns in closely held Alibaba Group. Yahoo would benefit if the proposed privatization helps boost the performance of the unit, which predicted slowing growth in adding vendor accounts, according to Elinor Leung, an analyst at CLSA Ltd. in Hong Kong.

“From Alibaba Group’s perspective, either with a deal with Yahoo or not, they are still better off with the privatization,” Leung said. “It gives more flexibility for the parent company to turn around the business.”

Deal Premium

The offer is 46 percent more than Alibaba.com’s last closing price before it was suspended Feb. 9. The shares declined 42 percent last year, and the company said yesterday that quarterly profit declined after changing its focus from adding paying members to improving customer service.

Alibaba.com’s “depressed” stock price is affecting the company’s reputation and employee morale, Maggie Wu, chief financial officer of the unit, said in a conference call yesterday.

“Taking Alibaba.com private will allow the company to make strategic decisions, focus on long-term benefits free from the pressure of market expectations and earn visibility and share- price fluctuations associated with being a listed company,” Wu said.

The planned buyout of Alibaba.com is “unrelated” to the discussions between Alibaba Group and Yahoo, Wu said. The parent company won’t raise its offer price for the unit, she said.

Alibaba Group has stepped up efforts to buy back shares from Yahoo, its biggest shareholder, since Carol Bartz stepped down as CEO of the Sunnyvale, California-based company in September. Bartz had opposed a sale.

Yahoo’s Struggles

Yahoo, founded in 1995, has considered selling its Asian assets after struggling to compete with Google Inc. and Facebook Inc. for online users and advertising dollars. The U.S. company acquired its stake in Alibaba, based in Hangzhou, China, in 2005 for $1 billion and ownership of Yahoo’s Chinese unit.

Yahoo declined to comment on Alibaba Group’s offer to buy out the unit.

Talks over the possible sale of Yahoo’s stake in its Japan operations and in Alibaba Group reached an impasse, a person briefed on the matter, who asked not to be identified because the discussions are private, told Bloomberg News this month.

“By taking the unit private, it will make it more flexible for the parent to reorganize its assets, and this will be helpful to the discussions with Yahoo,” said Dundas Deng, an analyst at Guotai Junan Securities in Shenzhen, China.

Financing

Yahoo has considered a deal with Alibaba Group that would cut its stake in the Chinese company to about 15 percent, a person familiar with the matter said in December. A possible deal may involve a tax-efficient arrangement in which Yahoo would swap its holding in Alibaba Group for cash and certain operating assets, the person said.

Alibaba.com may be an asset that could be offered to Yahoo under the possible transaction between the U.S. company and Alibaba Group, said Kelvin Ho, an analyst at Yuanta Securities Co. in Hong Kong.

“If the deal between Yahoo and the Alibaba parent goes through, Alibaba.com can enter into the equation,” Ho said.

The value of Yahoo’s Asian assets is about $11.5 billion, according to Sameet Sinha, an analyst at B. Riley & Co. in San Francisco.

Alibaba Group may seek more banks to underwrite a $3 billion loan signed yesterday with six lenders, according to two people familiar with the matter. The loan will be split into a $2 billion short-term facility and a $1 billion three-year term facility, one of the people said.

Baidu, Tencent

Australia & New Zealand Banking Group Ltd., Credit Suisse Group AG, DBS Bank Ltd., Deutsche Bank AG, HSBC Holdings Plc, and Mizuho Corporate Bank Ltd. are providing financing to Alibaba, according to a company filing to the Hong Kong Stock Exchange yesterday.

John Spelich, a Hong Kong-based spokesman for Alibaba Group, declined to comment on the financing.

The parent is being advised on the transaction by Rothschild, Credit Suisse and Deutsche Bank. HSBC is working with Alibaba.com, and Somerley Ltd. will act as adviser to a board committee.

The premium offered by Alibaba Group is 55 percent above Alibaba.com’s average price in the 20 days through Feb. 8.

That compares with the 29 percent average in 56 completed or pending Internet deals costing more than $1 billion that were announced in the past decade, according to data compiled by Bloomberg.

The buyout of Alibaba.com was valued at 33 times the unit’s earnings, according to the company’s filing. New York-listed Baidu Inc., China’s most valuable Internet company, trades at 43.34 times earnings, and Hong Kong-listed Tencent Holdings Ltd., China’s biggest online games operator, at 30.47 times, according to data compiled by Bloomberg.

The proposal to buy out minority shareholders in Alibaba.com requires approval of 75 percent of the votes cast by unit shareholders at a meeting to approve the deal, according to the Hong Kong exchange filing. Alibaba Group, which controls 73 percent of the unit’s shares, isn’t eligible to vote. The meeting date isn’t set.

The buyout offer is “highly likely” to be approved, Jin Yoon, an analyst at Nomura Holdings Inc. in Hong Kong, wrote in a report today.

In 2007, Alibaba.com held a $1.7 billion offering in Hong Kong, then the biggest IPO for an Internet company since Google Inc.’s in 2004. The sale price matched yesterday’s HK$13.50 buyout offer.

--With assistance from Wendy Mock in Hong Kong, Katrina Nicholas in Singapore, Sarah McDonald in Sydney and Brian Womack in San Francisco. Editors: Michael Tighe, Frank Longid

To contact the reporters on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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