Alibaba Group Holding Limited on Tuesday announced to be split up into six major business units to unlock “the value of Alibaba Group’s various businesses.” The company in a SEC filing said that the new organisational and governance structure will empower businesses to become more agile, enhance decision making, and enable faster responses to market changes.
Alibaba’s six major business groups will include the Cloud Intelligence Group, Taobao Tmall Business Group, Local Services Group, Global Digital Business Group, Cainiao Smart Logistics and Digital Media and Entertainment Group.
The company said each to be independently managed by its own chief executive officer and board of directors. However, Daniel Zhang will continue to serve as chairman and CEO of Alibaba Group, which will follow a holding company management model.
“Each business group will also have the flexibility to raise outside capital and potentially to seek its own IPO, with the exception of Taobao Tmall Business Group, which will remain wholly-owned by Alibaba Group,” the company’s SEC filing said.
Twin Goal Behind Split Up
As the company said, one of the goals behind the restructuring is to unlock the value of Alibaba Group’s various businesses. The second goal behind the move, according to a report by Bloomberg, was to appease Chinese government and investors traumatis by a years-long regulatory crackdown by the government.
One of Beijing’s main objectives during its extensive crackdown is being met by decentralising the company’s business lines and decision-making authority, the report said.
Chinese IT companies rarely make the switch to a holding company form. It might serve as a model for the comapany’s rivals like Tencent, the report added. Alibaba and Tencent have invested in hundreds of Start-ups, frequently influencing entire consumer internet industries like ride-hailing and supermarket delivery.
“For Beijing, it addresses the concern over the abuse of monopolistic power by internet behemoths.The split-up could also serve as a template for Alibaba’s peers, but we don’t expect any imminent similar move,” Evercore ISI analysts Neo Wang and Gin Wang said.
Jack Ma’s Return To China
The announcement from Alibaba came the same day when its billionaire co-founder Jack Ma returned to China after more than a year abroad, the bloomberg report said. The timing gave rise to rumors that the government was finally releasing one of the nation’s most well-known corporate names before releasing other portions of the private sector in an effort to rebuild a nation broken by years of harsh epidemic restrictions, the report added.
Market Welcomes Break-Up
According to the report, Alibaba’s market valuation increased by more than $30 billion as a result of its shares rising more than 16 per cent in Hong Kong. In New York, the company’s shares saw a sharp rise.
Bankers and investors also applauded the move, the report said. Bernstein analysts told Bloomberg, Alibaba’s business units could be worth much more than the company as a whole. They estimate that Alibaba’s shares could be worth as much as $164 each under a sum of the parts analysis, compared with a closing price of $86.12 before the announcement.
Spinoffs have previously been successful for Alibaba Group. In 2010, it split out Alipay, the decision that led to the creation of Ant Group Co. However, the Chinese government pulled the plug, as the Jack Ma led fintech unit was about to execute the largest IPO in history.
The company has since indicated it would be open to a second attempt, the report said. Despite the fact that the two businesses are independent and autonomous, some analysts predicted that Alibaba’s action may pave the way for its enormous fintech affiliate to follow.