Alibaba's $105 Billion Lockup Ends, Putting Focus on Yahoo Stake

Alibaba One Year Later: Did IPO Disappoint?
  • Lockup ends after steep decline in value of Alibaba's stock
  • Yahoo weighs spinoff of Alibaba stake amid tax uncertainty

Alibaba Group Holding Ltd. set a record with the size of its initial public offering. Now five times that amount of stock just became available, and all eyes are on Yahoo! Inc.

The lockup on 63 percent of Alibaba shares ended Saturday, freeing up the biggest shareholders to sell stock starting Monday. With Yahoo still working out what to do with its 15 percent stake, investors battered by the e-commerce company’s $128.5 billion market slump are bracing for the worst, such as the possibility of more shares hitting the market and driving prices down further.

Billionaire founder Jack Ma and Vice Chairman Joseph Tsai have pledged to keep their stock, while analysts expect SoftBank Group Corp. to hold onto its shares as the Japanese company parlays its Alibaba windfall into global expansion. SoftBank declined to comment.

Yahoo Factor

Yahoo is the biggest investor that hasn’t pledged to keep its holding, with Chief Executive Officer Marissa Mayer weighing a spinoff of the $25 billion stake. While Mayer was planning to move Yahoo’s 384 million shares in Alibaba into a separate company without paying taxes, there’s now uncertainty on whether Yahoo can exit without incurring a multibillion-dollar tax bill after the Internal Revenue Service didn’t give it a preliminary green light.

“You can’t ignore the fact that there is a potential seller in the market -- and that has to create some sort of uncertainty around Alibaba shares,” said Victor Anthony, an analyst at Axiom Capital Management. “I do think that Yahoo ultimately proceeds with the spinoff.”

A delay in Yahoo’s plan could potentially help bolster Alibaba’s price because investors would have to wait for access to the spinoff’s shares, effectively making it an extended lockup, Anthony said. The main issue is the performance of Alibaba’s main business, he said.

“It’s a non-event for both stocks, ultimately -- as long as Alibaba continues to perform,” Anthony said. “If it does, then I think the lockup’s expirations almost become a moot point.”

Rebecca Neufeld, a spokeswoman for Sunnyvale, California-based Yahoo, declined to comment.

Post-IPO Lockup

Lockup agreements are put in place to keep a company’s share price stable after a market debut, preventing employees and pre-IPO investors from dumping the stock. Monday is the first day of trading since the lockup expired.

The end of a lockup period can be positive for a stock by ending the overhang from an IPO months or even years earlier. Facebook Inc. has climbed more than fourfold since its biggest parcel of shares was released in November 2012.

“It’s typically a catalyst for stocks, but I do think there’s going to be another two to three tough quarters for Alibaba,” said James Cordwell, a London-based analyst at Atlantic Equities LLP. “There could be a bit of recovery as we get over the lockup.”

Last year’s Alibaba IPO raised $25 billion, with 320 million shares sold. The end of the trading restriction will see almost 1.6 billion shares released, with that stock having a market value of about $105 billion.

Under Water

The stock closed Friday at $65.75 and Alibaba’s market value has slumped $128.5 billion from its peak in November. That compares with $68 paid in the IPO. That poor performance may prompt investors released from the lockup to hold off on selling.

“If the stock was materially above IPO price, then I think employees would rush to sell,” said Chi Tsang, an analyst at HSBC Holdings Plc.“At current levels, I suspect there’s less motivation.”

Tsai said in August he and Ma had “zero intention” to sell. Tsai and Ma hold a total of 269 million shares, or about 10 percent of the stock that has just been unlocked. SoftBank Chairman Masayoshi Son said in May his company would hold its 798 million shares “instead of cashing in.”

“The main concern is what Yahoo is going to do with its stock,” said Tiffany Feng, an analyst at BOC International Holdings Ltd. in Hong Kong. “Until that becomes clear, the overhang on Alibaba’s share price won’t go away.”

For more, read this QuickTake: Alibaba

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