How Jack Ma can keep a tight grip on Alibaba after an IPO

Fri Sep 27, 2013 5:51pm EDT
 
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By Olivia Oran and Alexei Oreskovic

NEW YORK/SAN FRANCISCO (Reuters) - Alibaba Group Holding Ltd founder Jack Ma wants to keep a tight grip on the Chinese e-commerce company he founded even after he takes it public, and U.S. law gives him several ways to do so.

The company had planned to list in Hong Kong, but the exchange there threw cold water on Ma's plan to give Alibaba's insiders, who only own about 10 percent of the stock, the power to nominate a majority of the board, sources say. Regulators in the Chinese territory said that all shareholders must be treated equally.

A source close to the company told Reuters that Alibaba, now effectively controlled by a group of 28 "partners" including Ma, senior executives and other insiders, is intent on keeping a similar structure when it goes public. Listing in the U.S. makes that possible, a key consideration in choosing New York over Hong Kong, the source said.

Alibaba, which some analysts estimate to be worth up to $120 billion, is the most anticipated Internet IPO since Facebook's $16 billion offering last year. The loss of the share sale, which bankers have estimate will be worth more than $15 billion, is a blow to the Hong Kong exchange, as the listing would have added to its clout and trading volume.

Keeping a tight rein on its operations may be one way for Alibaba's founders and top management to prevent the company from becoming victim of short-term market demands in a business that requires constant innovation and capital investments, the source said. Facebook Inc and Google Inc have made similar choices.

But while many U.S. companies, including Facebook and Google, use a dual-class stock structure to keep power within the hands of the companies' founders, Alibaba is likely to pursue a different approach, the source said.

The source did not elaborate. But several corporate lawyers, while noting that they had no direct knowledge of the company's plans, said that one likely route for the 28 partners would be to list Alibaba by effectively creating a new partner that would become the publicly traded company.

Setting up the corporation that way - known as an "Up-C corporation," or umbrella partnership - can give the original partners much stronger voting rights, lawyers said.   Continued...

 
Jack Ma, chairman of China's largest e-commerce firm Alibaba Group attends a corporate event at the company's headquarters on the outskirts of Hangzhou, Zhejiang province in this April 23, 2013 file photo. REUTERS/Carlos Barria/Files