Aug. 25 (Bloomberg) -- At 4:30 a.m. on a May morning in Hong Kong, Joseph Tsai gathered with three other executives of Alibaba Group Holding Ltd. With the U.S. stock market just closed, it was time to submit the Chinese e-commerce giant’s prospectus for an initial public offering -- likely to be the largest ever in the U.S.
As bottles of champagne awaited, each executive typed a word of the company name on a computer. All four then hit the send button, submitting the 340-page document that officially began the IPO process that will culminate in a few weeks.
While Chairman Jack Ma is the visionary founder of Alibaba, Tsai, the vice chairman, is the guy who stays up until 4:30 a.m. to execute that vision. Yale-educated and a former lawyer at Sullivan & Cromwell LLP, Tsai’s job now is to convince investors to buy the stock of a Chinese company that analysts say is worth almost $200 billion, making it the most valuable Internet firm after Google Inc.
“Alibaba wouldn’t be where it is today without Joe Tsai,” said Porter Erisman, who worked in marketing and communications at Alibaba in the early days and just released a documentary on the company’s beginnings. “Joe is the international lens for the whole group.”
Born in Taiwan, the 50-year-old Tsai came to the U.S. in 1977 to attend the Lawrenceville School, an elite boarding school in New Jersey, speaking hardly any English. By the time he graduated, he was conversing with no accent, and playing lacrosse.
He went on to play the sport at Yale University, where he stood in stark contrast to other players from middle-class backgrounds, said Jeff Gordon, a teammate from Long Island, New York. That didn’t stop Tsai from assimilating easily.
“We all immediately bonded,” said Gordon, who’s now an executive at Dish Network Corp. in Denver. “I knew what hard work he put in on the lacrosse field on a daily basis. Joe always did what he thought was right, and he was a steadying presence for all of us.”
Tsai defied conventional jock protocol by wearing a pink triangle on his chest in support of gay rights. When members of the team teased him, he replied that it was just the right thing to do.
Tsai helped transform Alibaba into a global powerhouse, leading negotiations for most of the early funding rounds, including $20 million from SoftBank Corp., and negotiating dozens of acquisitions, averaging two a month just this year. He also courted investors for Alibaba.com’s $1.69 billion IPO in Hong Kong in 2007.
Tsai also arranged the more controversial aspects of Alibaba Group’s upcoming IPO. He championed a partnership governance model that gives 27 individuals outsized control in nominating a majority of the board. And he formulated the company’s version of an exotic corporate structure that Chinese companies use to bypass restrictions on foreign ownership.
Tsai will be well rewarded if the IPO is successful. His stake of 3.6 percent could be worth as much as $7.1 billion, based on analyst estimates of the company’s value.
A spokesman for Alibaba, Tsai and Ma declined to comment for this piece. The story is based on conversations with people who have direct knowledge of the events who asked not to be named discussing personal matters.
Born into a family of prominent lawyers, Tsai graduated from Yale Law School in 1990 and then worked as a tax attorney at Sullivan & Cromwell in New York. After three years, he switched to private equity, seeking a role that allowed him to make decisions, instead of advising on them. He worked for a small, buyout firm in New York and then moved to Hong Kong for Stockholm-based Investor AB.
It was in this role that he first met Ma in 1999 in Hangzhou, China after being introduced by a friend. Tsai was impressed with Ma’s idea to create Alibaba.com, an international import and export marketplace, as well as his charismatic personality.
Later that year, Tsai made a second trip to the Chinese city, bringing his wife, Clara, pregnant with their first of three children, to convince her it was the right move. The visit included a boat ride with Jack Ma in Hangzhou’s famous West Lake, where the two discussed future plans for Alibaba.
Tsai quit his $700,000-a-year job at Investor AB and offered to work for nothing for Alibaba. Ma asked that each of Alibaba’s 18 co-founders -- of which Tsai is the only Western-educated member -- accept a salary of $600 a year.
Tsai served as chief financial officer of Alibaba for more than a decade, before becoming Alibaba’s vice chairman in 2013, overseeing the company’s development. He led the deal to repurchase some of Yahoo! Inc.’s stake in Alibaba through transactions valued at $7.6 billion in 2012.
Eric Jackson was an activist investor in 2007 targeting Yahoo, which at the time had a 40 percent stake in Alibaba. Following the campaign, he scheduled a meeting in December 2010 with Tsai in Hong Kong that lasted 90 minutes.
“It was a huge eye-opener for me,” said Jackson, founder of hedge fund Ironfire Capital LLC. “He was so impressive to me that I walked out of my meeting and said we have to go back and buy Yahoo shares because no one in America understands that they have a 40 percent stake in what’s going to be an Internet juggernaut.”
Alibaba hasn’t always been loved by its shareholders. In 2011, the company drew complaints from Yahoo and Softbank after transferring ownership of Alipay, its online payment unit, to a company controlled by Ma -- a move Yahoo said it didn’t learn of until months later.
Tsai led Alibaba’s talks with Yahoo and Softbank on a compensation deal that followed.
If Alibaba were a movie, Ma would be the star actor and director, and Tsai would be the executive producer. While Ma comes up with many of the ideas and is involved in the business, Tsai is known as the guy who gets stuff done. Most who know Tsai describe him as low-key, even-keeled and humble.
“The fact that it’s a successful partnership is probably because they are such different people,” said Jim Rogers, chairman of Singapore-based Rogers Holdings, an investment firm. “As a team they’ve done a brilliant job.”
While Ma is based in Alibaba’s headquarters in Hangzhou, Tsai conducts business from Hong Kong. He travels to Hangzhou every three weeks and the two speak by phone almost every day.
One of Tsai’s biggest challenges will be to allay investor concerns about the complicated legal structure Alibaba is required to use. China prohibits foreign investors from buying shares in certain industries, including the Internet. To get around this, companies in the past have used variable interest entity, or VIEs, where foreigners are connected to the publicly-held parent through contracts rather than direct ownership. The risk is that Chinese courts don’t uphold the validity of the VIE contracts.
While earlier Chinese companies went public with as much as 99 percent of their revenue tied to the VIE, Tsai arranged Alibaba’s so that only about 12 percent of its revenue is tied to the structure.
Tsai also was on the front line negotiating to list Alibaba’s shares in Hong Kong. Alibaba will be governed by a partnership with exclusive right to nominate a majority of its board of directors, a structure that was eventually rejected by Hong Kong’s Securities & Futures Commission.
The company’s insistence on maintaining the governance structure led to Alibaba abandoning Hong Kong for the U.S. as listing venue.
Alibaba struck more than $4.6 billion worth of acquisitions this year, data compiled by Bloomberg show. Tsai oversees the company’s M&A team, and led many of the deal discussions, expanding Alibaba’s business into new territories from online mapping to department stores and TV content.
One of the acquisitions stumbled this month when a film producer it bought in June said it uncovered possible accounting flaws. A new management team installed by Alibaba at the unit, Alibaba Pictures Group Ltd., uncovered possible “non-compliant treatment” of financial information for periods before its acquisition. This is unlikely to delay the share sale, a person familiar with the matter has said.
Tsai was also a key person in deciding which investment banks to hire for the lucrative IPO. Six banks are currently tapped to lead Alibaba’s share sale: Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Citigroup Inc.
Tsai juggled his IPO responsibilities while watching the World Lacrosse Championship in Denver in mid-July, where the Hong Kong and Chinese teams that he helped build were playing. Gordon, his former Yale teammate who stays in touch with Tsai through his Facebook account, watched the games with him.
“He hasn’t changed one iota,” Gordon said. “Did I expect him to be a very significant contributor to the world’s economy in some way, shape or form? Of course. It’s how hard he worked, how smart he was, his ability to see differences in others and become their brother.”
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