Hope for Tech Giants as Alibaba Faces Breakup Bid Amid China’s Crackdown
As investors applauded an extraordinary makeover of the Jack Ma-founded company as signaling the beginning of the end to Beijing’s crackdown on the sector, shares of Alibaba Group and other top Chinese tech companies rose.
The largest restructuring of the digital behemoth in its 24-year existence, Alibaba announced on Tuesday that it planned to break into six companies and seek fundraising or listings for most of them.
The group’s Hong Kong-listed shares on Wednesday increased by as high as 16.3%, following an overnight gain of 14.3% for its US-listed shares. JD.com Inc., a competitor in online shopping, increased by 7%, and Tencent Holdings Ltd., a leader in gaming, increased by 5%.
Comparatively, the benchmark Hang Seng Index rose by 2.3 percent, and the Hang Seng Tech Index gained 3.2 percent.
According to Jon Withaar, head of Asia special situations at Pictet Asset Management, Alibaba’s makeover “feels like a continuation of the government reorganization” of the digital companies and destruction of the huge monopoly industries in China.
The unprecedented regulatory crackdown China has carried out in recent years on some of its most recognizable domestic firms, primarily in the internet, private education, and real estate sectors, has erased billions from market values and dampened investor confidence.
Cloud Intelligence Group, Local Services Group, Taobao Tmall Commerce Group, Cainiao Smart Logistics Group, Global Digital Commerce Group, and Digital Media and Entertainment Group are the six divisions that Alibaba announced on Tuesday they would divide into.
According to two insiders familiar with the company’s thinking, the group had been considering spinning off separate business units for a very long time.
According to the source, Taobao and Tmall, two of Alibaba’s biggest revenue generators, will stay with the currently listed business. There will be five initial public offerings from the units.
According to the person and a different source acquainted with the capital market activities of Chinese IT businesses, Hong Kong is the most likely place for these IPOs.
A request for comment from Alibaba was slow to receive a response.
Softbank Group Inc., which owns a 13.7 percent interest in Alibaba, saw a 6 percent increase in value in Japan.
With Daniel Zhang remaining in his role as group CEO and the six divisions each having their own CEOs and boards, Alibaba would reorganize into a holding company structure.
Once Beijing initiated a years-long legislative crackdown on the digital sector, in which Alibaba was a popular target, the business underwent the largest restructuring in its history.
Alibaba founder Ma, who had not been in mainland China since late 2021, was seen visiting a primary school in Hangzhou, where Alibaba’s headquarters are, a day before the reorganization was disclosed.
In addition to allowing for greater valuations, the restructuring, according to Brian Tycango of Stansberry Research, better safeguards individual divisions from any future governmental control.