By Dow Jones Business News, September 25, 2013, 12:45:00 AM EDT
Alibaba Group Holding Ltd., China's most valuable e-commerce company, will hold its highly anticipated initial public
offering in the U.S. after failing to agree with Hong Kong's stock exchange over a listing in the city, according to
people familiar with the situation.
The deal, which could value the company at $70 billion or more based on analyst estimates, would be the biggest in the
technology sector since Facebook Inc.'s IPO last year and would test global investor appetite for China's fast-growing
consumer market. It would also be bigger than Twitter Inc.'s planned IPO.
Alibaba's offering, which could come as soon as the first quarter next year if it begins preparations for a U.S. IPO
soon, sets up a battle between the New York Stock Exchange and the Nasdaq Stock Market for the high-profile listing. The
loss of the Alibaba IPO is a big blow to Hong Kong's stock exchange, which has struggled in the last couple of years to
regain its 2011 status of being the world's top venue for new listings. Investment bankers in Hong Kong have also been
pitching for a role in the IPO, which could have been one of the city's biggest in recent years.
Alibaba, which operates online marketplaces such as Taobao and Tmall, has yet to file its listing plan with the U.S.,
but the company has hired a U.S. law firm to work on an IPO in New York, and it will likely hire banks soon, one of the
Alibaba had been looking at either Hong Kong or New York as a possible listing venue. The company had been talking to
the city's bourse about setting up a structure to allow its "partners"--which include Alibaba founder Jack Ma and senior
management--to maintain some control over the makeup of its board even after an IPO. Specifically, the 28 partners at
the firm would nominate the majority of the board, and put that nomination up for a vote with the shareholders. Critics
said that such a system would have granted too much power to Mr. Ma and other senior executives who only hold around 10%
of the company, as their board nominees would rarely be rejected by shareholders. If it lists in the U.S., Alibaba will
use the same partnership structure for nominating board members, the person said.
While a New York listing will likely allow Mr. Ma and other senior executives to maintain control over board
nominations, the company will also face a more litigious environment compared to Hong Kong, where class action is
In a letter to employees this month, Mr. Ma explained why Alibaba's partners--including himself--needed to have the
power to determine the company's future while keeping its long-term vision intact.
"We believe that only a group of people who are passionate about the company and are mission-driven will be able to
protect the company from external pressure from competition and temptation to seek short-term gains," Mr. Ma said.
Alibaba's board-nomination proposal had placed the Hong Kong exchange in a tough spot, as accepting the request would
go against the bourse's oft-stated principle of treating all shareholders equally. Some critics said that if the
exchange gave in other prospective IPO candidates would ask for special rights.
For Alibaba's part, a listing in Hong Kong, while it is a less liquid market than New York, wouldn't have necessarily
meant a lower valuation for the company, say Hong Kong-based bankers who note that market-leading technology firms can
command high prices for their IPOs in the city. Tencent Holdings Ltd., a Chinese Internet giant fiercely competing
against Alibaba, is listed in Hong Kong, and its market capitalization recently topped $100 billion.
A spokeswoman at Hong Kong Exchanges & Clearing Ltd., the operator of Hong Kong's stock exchange, declined to comment.
In the U.S., opting for the partnership structure to nominate the majority of its board will allow Alibaba to avoid
having to adopt a dual-class voting system favored by many U.S.-listed technology companies like Facebook and Google
Inc. A dual-class system allows a company to issue two classes of shares with different voting rights, giving founders
and management greater weight in shareholder votes. Hong Kong doesn't allow such a system, which has been criticized by
some U.S. corporate governance experts for not respecting shareholder rights.
Prudence Ho and Isabella Steger contributed to this article.
Write to Juro Osawa at email@example.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
Copyright (c) 2013 Dow Jones & Company, Inc.