The partnership that governs Alibaba Group Holding Ltd. (BABA) strengthened its grip over the Chinese company as it makes final preparations for its U.S. initial public offering.
The group -- currently made up of 27 executives -- is entitled “without the need for any additional shareholder approval” to appoint more directors, according to an amended U.S. regulatory filing yesterday. It would do so if fewer than a simple majority of board members are partnership nominees.
The Chinese e-commerce company, which is preparing for what may be the largest IPO in the U.S., has already said the partnership has the exclusive right to nominate a majority of the board. Alibaba has said ordinary shareholders would vote on those nominees.
The partnership intends to designate four out of the nine original directors, and could appoint two additional members, bringing the total number of people on the board to 11.
“This ability to expand board seats is just another mechanism to give the partnership control and keep control of Alibaba,” said Eric Jackson, president of hedge-fund Ironfire Capital LLC. “It doesn’t surprise me because the whole reason they’re doing the IPO in New York is because they felt that the partnership was a key component of their competitive advantage.”
Alibaba’s partnership structure kept it from conducting the IPO in Hong Kong. The arrangement is permitted in the U.S., where companies more commonly create different classes of shares to keep insiders in charge. The Hangzhou-based company’s structure has raised corporate governance concerns because it enables founder Jack Ma and his management team to keep control.
Alibaba investors would be accepting limited oversight of management just as Ma embarks on a deal spree that’s pushing the company into new areas from online mapping to TV content. The acquisitions include a 1.2 billion yuan ($193 million) stake in Guangzhou Evergrande Football Club, China’s most popular soccer team.
The revision to Alibaba’s IPO filing comes during a period in which the U.S. Securities and Exchange Commission is privately submitting questions to the company. The changes yesterday may reflect comments from the regulator or additional disclosures that were prompted by the company and the details will be clearer following Alibaba’s IPO.
The company could conduct the IPO as soon as early August, people with knowledge of the matter have said. Estimates of its valuation suggest it could raise more than $20 billion.
Alibaba also revised the text about its relationship with the PayPal-like unit Alipay. The new filing extracts Alibaba’s description of Alipay as a “related company” and makes it clearer that there’s a contractual arrangement between the two. The update also adds a section that explains how the People’s Bank of China required a divestment of the unit in 2011.
The partnership will elect new members each year, with new members required to maintain a “meaningful level of equity interests” in the company, the filing shows. Current partners include Chief Executive Officer Jonathan Lu and co-founders Ma and Joseph Tsai.
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