Chinese e-commerce group Alibaba Group has offered as much as US$2.5 billion in cash for shares it does not already own in its Hong Kong-listed Web portal, says company. This is aside from talks currently underway to buy back a stake in Alibaba Group owned by Yahoo.
In a statement Tuesday, the Alibaba Group and Alibaba.com jointly announced their proposed share buyback for the outstanding 27 percent stake.
Jack Ma, founder, chairman and CEO of Alibaba Group and chairman of Alibaba.com, said in the statement: "Taking Alibaba.com private will allow our company to make long-term decisions that are in the best interest of our customers and that are also free from the pressures that come from having a publicly listed company.
"With this offer, we provide our shareholders a chance to realize their investment now at an attractive cash premium rather than waiting indefinitely during this period of transition," he said.
The companies will offer shareholders HK$13.50 (US$1.74) in cash per share, which is a 60.4 percent premium over the average of the last 60-days average closing price of Alibaba.com shares, said the statement. According to Reuters, this translates to US$2.5 billion in cash that the company is willing to fork out to private investors. It is also about 46 percent more than the last closing price.
In a Bloomberg report, Dundas Deng, an analyst at Guotai Junan Securities, said the deal may facilitate Ma's efforts to acquire Yahoo's holdings in Alibaba Group. "By taking the unit private, it will make it more flexible for the parent to reorganize its assets, and this will be helpful to the discussions with Yahoo," he was quoted saying.
According to Alibaba, the decision to privatize the B2B (business-to-business e-commerce portal is due to a change in its business strategy. The change could "result in slower revenue growth and less earnings visibility in the short- to medium-term", it noted.
In its early years, the company had focused on rapidly increasing its paying members which comprises of manufacturers, trading companies and wholesalers who pay a subscription fee to sell their products on the portal, it said. However, last year, the company changed coursed to improve in the quality of the buyers' experience on the market place which led to the slowing of paying customers, said Alibaba.
In February last year, scandal hit the Web portal when fraudulent activities on the site was discovered. Fake storefronts listed as "Gold Supplier" would take orders but not deliver the goods. As a result of the scandal, several executives resigned.
Bloomberg reported that Maggie Wu, chief financial officer of the Alibaba.com, said in a conference call that the company's "depressed" stock price was affecting the company's reputation and employee morale.
Alibaba.com had announced a quarterly profit that missed analyst estimates and also predicted that vendor growth would slow.