Chinese e-commerce giant Alibaba has announced plans to split into six business units, leading shares to rally on investor optimism that the restructuring will spur more initial public offerings in the future.
Alibaba’s shares surged more than 14% in Hong Kong during Wednesday morning trading, after Chief Executive Officer Daniel Zhang announced the restructuring in a Tuesday email to employees. The rally follows the dual-listed company’s 14.3% gain in New York overnight, which added $1.2 billion to cofounder Jack Ma’s wealth and made him one of the five biggest gainers on the World’s Real-Time Billionaires List.
The restructuring—which Zhang described as “the most significant governance overhaul” in the company’s 24-year history—will see the creation of business groups that include: cloud computing, Chinese e-commerce, global e-commerce, food deliveries and local services, smart logistics, and digital media and entertainment.
Each of the six units will have its own CEO and board of directors, with Zhang himself remaining in charge of the Alibaba Group as well as the cloud computing unit.
“The market is the best litmus test, and each business group and company can pursue independent fundraising and IPOs when they are ready,” Zhang wrote in the email, according to Alibaba’s own Alizila news site.
Meanwhile, the Cainiao logistic unit, the Southeast Asia-based Lazada, as well as local services platform Eleme and supermarket chain Freshippo are all businesses that have external investors, which make them “possible to move in the direction of independent listings,” according to a note from Blue Lotus Research Institute that is published via the Smartkarma platform.
“We suggest that the split will benefit BABA’s stock price from a valuation standpoint,” Blue Lotus’ managing director, Shawn Yang, wrote in the report, adding that the company has a 20% upside based on his calculation using a sum-of-the-parts approach.
Alizila, for its part, didn’t mention when the restructuring would be completed. An Alibaba spokesperson didn’t immediately respond to messages seeking comment on the company’s expected timeline for the overhaul.
The announcement of Alibaba’s restructuring coincides with Ma’s return to China. After spending more than a year traveling abroad as Alibaba and the fintech giant Ant Group were under intense regulatory scrutiny, the 58-year-old mogul was recently spotted visiting a private school in the scenic city of Hangzhou. He had stepped down from the helm of Alibaba in 2019, and plans to gradually relinquish control of Ant Group. It remains unclear how long Ma intends to stay in Hangzhou, which is also the headquarters of the e-commerce behemoth.
(copyright： Forbes Alibaba To Split Into Six Business Units With Plans For Future IPOs (forbes.com)