Alibaba Group Holding Ltd. and Hong Kong Exchanges & Clearing Ltd. executives have taken to blog posts to state their case after China’s largest e-commerce company ended talks for an initial public offering in the city.
Alibaba’s Executive Vice Chairman Joseph Tsai said the bourse has failed to “adapt to future trends and changes” while Charles Li, chief executive officer of H.K Exchanges, told of a recent dream that underlined to him the need to put the public interest first.
The bourse wouldn’t accept Alibaba’s proposal for its partnership, which includes members of senior management, to control a majority of board nominations after a listing. Hong Kong’s exchange prohibits IPOs with different classes of shares, a structure that has been used by companies in the U.S. to keep founders in control. The company may seek a U.S. share sale instead, people familiar with the matter said this week.
“We are deeply aware of the disruption that is brought about by the Internet across all industries, and the capital markets are not exempt from this disruption,” Tsai said. “The question Hong Kong must address is whether it is ready to look forward as the rest of the world passes it by.”
Tsai said the company never proposed a dual-class structure, and that the partnership arrangement is meant to protect the company’s long-term interests.
SoftBank Corp. (9984), Alibaba’s biggest shareholder with a stake of about 37 percent, has backed the partnership structure as integral to the success of the e-commerce company.
“Alibaba has built a phenomenal business and created tremendous value for its shareholders over the years,” SoftBank’s billionaire President Masayoshi Son said. “Alibaba’s special culture is at the heart of its success and preserving it will be very important going forward. We are therefore very supportive of the Alibaba partnership structure.”
Investment banks have valued Alibaba, founded by former English teacher Jack Ma, at as much as $120 billion.
Alibaba could have raised about HK$100 billion ($12.9 billion) in an initial sale, Ernst & Young LLP said June 28. That would have made Hong Kong’s largest IPO since AIA Group Ltd. (1299)’s $20 billion sale in October 2010, according to data compiled by Bloomberg.
Losing the Alibaba initial public offering would be a blow to Hong Kong, which hasn’t hosted a first-time share sale of more than $4 billion since October 2010.
Hong Kong Exchanges’ Li said the bourse has to consider the decision objectively, recounting a dream including characters he dubbed Mr Innovation, Mr Disclosure, Mr Solution and Mr. Big Investor.
“In real life, there isn’t a Mr Solution who can put the right decision together for us,” Li wrote in a blog post. “In the end, we should take responsibility for doing what is right and best for Hong Kong, not just what is safe and easy.”
Yahoo! Inc. (YHOO), Alibaba’s second-largest investor with a stake of about 24 percent, said it’s critical that the company’s leadership can preserve its culture and set strategy.
“Yahoo believes that management’s efforts reflect the desire to govern the company for long-term success while also balancing the rights of shareholders,” said Jacqueline Reses, chief development officer of Yahoo and a director of Alibaba.
Alibaba hasn’t hired banks and is looking for U.S. law firms to help with the listing, the people familiar said Sept. 25.
Tsai said a partnership structure will prevent the company from deteriorating after the founders leave, and will enable the board to set strategy “without being influenced by the fluctuating attitudes of the capital markets.”
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