Early investors in Chinese online giant Alibaba are set to sell $8bn worth of shares Friday morning, escaping the “lockup” that usually requires them to hold their shares for several months.
The disclosure, first reported by the Wall Street Journal, is just one more complication ahead of what looks set to be the biggest stock market floatation of all time on Friday.
Alibaba will set the price of its shares on Thursday and is expected to raise up to $22bn (£13.5bn). The company has set a range of $66-$68 a share for the initial public offering – valuing Alibaba at $165bn at the midpoint. Some analysts have speculated the company could be valued at more than $200bn once it goes public of the New York Stock Exchange, making the company almost more valuable than the combined value of Amazon and eBay, the two companies it is most often compared to.
The sale of shares in Alibaba Group Holding Ltd, which will be listed under the ticker BABA, follows a two-week global roadshow which has resulted in frenzied interest from investors eager to buy into the rapid growth of China’s internet sector.
Jack Ma, 50, founder and executive chairman of the company, is known for his flamboyant style that has seen him dress up as Lady Gaga in the past to entertain staff. Formerly a university lecturer he started Alibaba 15 years ago in his one-bedroom flat and retains a 9% stake.
Since then, Alibaba has come to power 80% of all online commerce conducted in China, the world’s second-largest economy. It has also branched out into areas such as e-payments and financial investment. The floatation is expected to confirm him as China’s richest man.
Ma is set to sell 12.7m shares at the IPO – worth $842m at $66 a share. Other investors, not identified by name in Alibaba’s filings, hold $8bn of shares that can be sold at IPO. The number of shares represents about a third of what could be sold in the deal and is highly unusual. When Facebook – the last record breaking tech IPO – went public in 2012 investor were not allowed to sell pre-IPO shares.
The company’s IPO has also been marred by questions of accounting. Alibaba has been aggressively acquisitive and some analysts have questioned the rigor of its analysis ahead of purchases. Last month the company announced it had found issues at ChinaVision Media Group, a film company it bought in March.
So far none of these issues seem to have dampened investor enthusiasm. Ma and his advisers have been carefully studying the Facebook IPO in the hopes of avoiding the pitfalls that befell the share sale. Despite massive appetite for the shares Facebook’s IPO proved a disaster. The Nasdaq stock exchange failed to keep up with demand, marring the debut, and investor worries about the social media’s mobile business led to a slump in Facebook’s share price that took a year to erase.
Appetite for Alibaba’s deal is, if anything, higher and analysts expect the stock to soar on day one. PrivCo, the analyst that correctly predicted Facebook’s IPO flop, calculates Alibaba is worth $100 a share – valuing the company at $240bn, $40bn more than Facebook.
James Gellert, chief executive of analyst Rapid Ratings, said the IPO would set the stage for the full emergence of a new tech powerhouse. “Alibaba already is by many measures a global company and will soon be very much more so.” He said the share sale would give Alibaba “a boatload of cash” to invest in growth. Alibaba already has $8bn in cash on its books and looks set to add another $10bn from the IPO.
Alibaba plans to expand its business in the US and Europe, where it is not widely known, after the deal. A recent US poll found that 88% of respondents had not heard of the company.
“Investors are looking at this business both as it is today and at its future potential. Today it’s a stunningly large company in the largest market with the largest growth potential. In five years I think we’ll look back at this and see a strong story of international growth.”
This article was written by Dominic Rushe and Shane Hickey, for theguardian.com on Thursday 18th September 2014 20.18 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010