technology

Alibaba’s Banks Boost IPO Size to Record of $25 Billion

Alibaba Group Holding Ltd.’s initial public offering became the biggest ever at $25 billion, after the compay’s bankers exercised an option to boost the deal size by 15 percent.

The underwriters bought an additional 48 million American depositary shares from the company at the IPO price of $68 each, according to a statement from Alibaba today. Including the “greenshoe,” Alibaba was able to surpass the current IPO record held by Agricultural Bank of China Ltd.’s $22.1 billion sale in 2010.

Shares of Alibaba declined today after surging 38 percent during their trading Sept. 19 debut. That was the biggest first-day jump for an IPO of at least $10 billion, data compiled by Bloomberg show, and made Alibaba among the most valuable companies in the U.S.

“Expectations for this company are sky high,” Li Muzhi, a Hong Kong-based analyst at Arete Research Service LLP, said today by phone. “The market seems to be using Alibaba as a proxy for the macroeconomy and consumer economy.”

Underwriter Fees

Alibaba’s underwriters earned $300 million in fees, taking home 1.2 percent of the proceeds, according to a filing today. Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley each earned 15.7 percent of the fees, while Citigroup Inc.’s share represented 7.9 percent, the filing shows. Alibaba’s 28 other underwriters received 1 percent or less apiece.

Alibaba, led by billionaire chairman Jack Ma, slipped 3.9 percent to $90.25 at 11:04 a.m. in New York today.

About 50 percent of Alibaba’s IPO was allocated to 25 institutional investors, people familiar with the matter said last week. Such a concentrated deal encouraged more fund managers to buy on the first day of trading, as they sought exposure to Alibaba’s dominance over a booming e-commerce industry in the country of 1.36 billion people.

McKinsey & Co. predicts online commerce in the world’s second-largest economy will reach $395 billion next year, triple its 2011 level. Alibaba’s retail platforms helped generate 6.1 billion package shipments in the 12 months ended June, accounting for 54 percent of the nation’s total, the company said in August.

Operating Profit

Operating profit at Alibaba advanced to $1.1 billion in the three months ended June, or 42 percent more than the combined profit of Amazon and EBay for the period. Revenue rose 46 percent in local currency to the equivalent of $2.54 billion.

Alibaba drew crowds of money managers to meetings held around the world as the company pitched itself this month to prospective shareholders. As many as 800 people turned up to the first event at New York’s Waldorf Astoria hotel.

Ma, who started Alibaba from his Hangzhou apartment in 1999 with $60,000, watched his net worth swell to $26.5 billion as the shares rose, according to the Bloomberg Billionaires Index. The 50-year-old former schoolteacher is China’s richest man, trailing only Hong Kong property tycoon Li Ka-shing among Asian billionaires.

Simpson Thacher & Bartlett LLP and Sullivan & Cromwell LLP provided legal advice. Rothschild was Alibaba’s IPO adviser.

(Updates with investment banking fees in the fifth paragraph.)
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