While Wall Street boasts more than 42 initial public offerings (IPOs) so far in 2014, outperforming even the European and Asian market listings, the U.S. is now all geared to welcome the IPO of China’s e-commerce giant Alibaba Group Holding Ltd., which is valued at over $140 billion. NYSE, owned by IntercontinentalExchange Group Inc. (ICE - Analyst Report), or Nasdaq OMX Group Inc. (NDAQ - Analyst Report) may now absorb Alibaba instead of the Hong Kong Stock Exchange.
Founded in 1999, Alibaba is primarily owned by Yahoo Inc. (YHOO - Analyst Report) (24%), Japan’s Softbank Corp. (37%) as well as other founders and senior managers (17%). Additionally, Alibaba plans to appoint six global bank giants as underwriters, namely, Morgan Stanley (MS - Analyst Report), Deutsche Bank AG (DB - Analyst Report), Credit Suisse AG (CS - Snapshot Report), Goldman Sachs Group Inc. (GS - Analyst Report), JP Morgan Chase & Co. (JPM - Analyst Report) and Citigroup Inc. (C - Analyst Report), according to Reuters and The Wall Street Journal.
The deal is expected to generate commissions worth about $260 million to these banks altogether. The filing of Alibaba’s IPO to the Securities Exchange Commission (SEC) is expected by April this year, while the debut is foreseen sometime in the third quarter of 2014.
Enjoying a Strong Competitive Edge
Armed with a staff strength of more than 20,000 employees, Alibaba claims about 80% of the e-commerce market of China, the world’s second-largest economy. The company’s business-to-business online portal brings together Chinese manufacturers with foreign buyers across more than 240 countries, while its consumer-to consumer retail shopping portal operates with a billion products through Toabao. Meanwhile, its online payment service, Alipay, maintains more than half of the online payment transactions in China.
Moreover, the proceeds from the latest multi-billion IPO deal are expected to peak over $15 billion. After Google Inc.’s and Twitter Inc.’s (TWTR) IPOs that raised $1.9 billion in 2004 and $2.09 billion in 2013, respectively, Alibaba is expected to be the next largest Internet stock in the U.S. market, close to Facebook Inc. (FB), which earned about $16 billion in 2012.
With a huge market presence, strong business profile and immense future growth prospects, we believe Alibaba enjoys a robust global competitive edge and sales flow greater than the combined offerings of its peers, Amazon.com Inc. (AMZN - Analyst Report) and eBay Inc. (EBAY - Analyst Report). Going ahead, listing in the U.S. would further support Alibaba’s long-term expansion and growth strategies.
Alibaba to Boost Yahoo’s Coffers
When Yahoo earned $4.6 billion from its stake sale in Alibaba in 2012, market experts predict that Yahoo could rake in about $15 billion should it sell even a 10% stake in Alibaba, given the agreement clause that requires Yahoo to dilute a percentage of its holdings upon an Alibaba IPO.
Alibaba, in which Yahoo invested $1 billion in 2005 for a 40% stake, now accounts for about 88% of the latter’s total business. Along with Yahoo, this pre-IPO period has infused strong momentum in the shares of SoftBank.
Miss for Hong Kong, Hit for the U.S.
Alibaba’s plan to list itself in the U.S. has sent shock waves across Asian markets, particularly the Hong Kong Stock Exchange, which was the company’s initially-preferred listing venue. However, the Hong Kong regulators rebuffed Alibaba’s proposal of permitting the partners to nominate the board of the company, thereby violating the principle of having one vote against one share.
However, this also elucidates the need for more evolved and dynamic market policies in this Asian market. On the other hand, high-grade technology and low latency processes for effective risk management has been driving more and more start-ups to list themselves in the U.S.
Recently, NYSE absorbed an Irish Internet gaming firm, King Digital Entertainment Plc, which is worth $7.6 billion, along with Twitter, while the Chinese online retailing giant, JD.com, filed in for a U.S. stock listing earlier this year. Going ahead, China's leading microblogging firm, Weibo Corp., also aims to head to the U.S. for its IPO. We believe that the entry of such dynamic, new-age companies only raise optimism for growth of the U.S. stock exchange industry.