February 21, 2012, 3:45 PM EST
By Mark Lee and Wendy Mock
Feb. 22 (Bloomberg) — Alibaba Group Holding Ltd., in talks to buy back a stake owned by Yahoo! Inc., offered as much as HK$19.6 billion ($2.5 billion) to privatize a listed unit and gain full control of China’s biggest corporate e-commerce site.
The company bid HK$13.50 a share for the 27 percent of Alibaba.com Ltd. it doesn’t already own, according to a Hong Kong Stock Exchange statement yesterday. That’s 46 percent more than the last closing price.
Chairman Jack Ma seeks to buy out minority Alibaba.com shareholders four years after a $1.7 billion initial public offering as the unit warned of worsening earnings tied to a change in strategy. The buyout may facilitate Ma’s efforts to acquire Yahoo’s holdings in Alibaba Group, said Dundas Deng, an analyst at Guotai Junan Securities.
“By taking the unit private, it will make it more flexible for the parent to reorganize its assets, and this will be helpful to the discussions with Yahoo,” Deng, who rates Alibaba.com “accumulate,” said by phone from Shenzhen, China.
Alibaba.com will resume trading in Hong Kong today after being suspended since Feb. 9. The stock closed at HK$9.25 on Feb. 8 and had declined 44 percent in the previous 12 months, underperforming Chinese Internet rivals Baidu Inc. and Tencent Holdings Ltd.
$3 Billion Loan
Alibaba.com’s “depressed” stock price is affecting the company’s reputation and employee morale, Maggie Wu, chief financial officer of the unit, said in a conference call yesterday. The company reported quarterly profit that missed estimates and predicted that vendor growth will slow.
Alibaba Group also signed a $3 billion loan with six banks, according to two people familiar with the matter. Australia New Zealand Banking Group Ltd., Credit Suisse Group AG, DBS Bank Ltd., Deutsche Bank AG, HSBC Holdings Plc, and Mizuho Corporate Bank Ltd. will provide the funds, the people said, asking not to be identified because details are private.
John Spelich, a Hong Kong-based spokesman for Alibaba Group, declined to comment on the size of the loan.
A $3 billion facility would be the biggest U.S. dollar loan in Asia outside Japan since May, when Glencore International AG’s Singapore unit signed an $8.34 billion loan due in 2014 to refinance debt, according to data compiled by Bloomberg.
Yahoo Talks
Fourth-quarter income declined 5.9 percent to 386 million yuan ($61 million) from 410 million yuan a year earlier, Alibaba.com reported yesterday. That compared with the 432 million-yuan average of five analysts’ estimates compiled by Bloomberg. Sales rose to 1.7 billion yuan from 1.5 billion yuan.
Fewer exporters are paying Alibaba.com to set up online accounts after bogus vendors defrauded buyers on its website, prompting Chief Executive Officer Jonathan Lu to toughen screening. The company shifted its focus from adding paying customers to improving the quality of its website, and that will negatively affect earnings, he said on the conference call.
Alibaba Group, operator of Taobao, China’s biggest online shopping site, has stepped up efforts to buy back shares from Yahoo since Carol Bartz stepped down as CEO of the Sunnyvale, California-based company in September. Bartz had opposed a sale.
Talks over the possible sale of Yahoo’s stake in its Japan operations and in Alibaba Group reached an impasse, a person briefed on the matter, who asked not to be identified because the discussions are private, told Bloomberg News this month.
Deutsche, HSBC
The discussions had focused on a tax-efficient deal and the parties may pursue other approaches, the person said.
The planned buyout of Alibaba.com is “unrelated” to the discussions between Alibaba Group and Yahoo, Wu said. The parent is being advised on the transaction by Rothschild, Credit Suisse and Deutsche Bank. HSBC is working with Alibaba.com, and Somerley Ltd. will act as adviser to a board committee.
The premium offered by Alibaba Group compares with the 29 percent average in 56 completed or pending Internet deals costing more than $1 billion that were announced in the past decade, according to data compiled by Bloomberg.
The buyout of Alibaba.com is valued at 33 times the unit’s earnings last year. New York-listed Baidu, China’s most valuable Internet company, trades at 45 times earnings multiple, according to data compiled by Bloomberg.
Talks to reorganize Yahoo’s holding in Alibaba Group are “not conditional” on the success of the offer for Alibaba.com, Wu said. Alibaba Group won’t raise its offer price for the unit, she said.
Shareholder Vote
The proposal to privatize Alibaba.com requires approval of 75 percent of the votes cast by unit shareholders at a meeting to approve the deal, according to the Hong Kong exchange filing. Alibaba Group, which controls 73 percent of the unit’s shares, isn’t eligible to vote. The meeting date isn’t yet set.
Alibaba Group may be reorganizing its assets, including Alibaba.com, as it prepares its own initial public offering, said Connie Gu, an analyst at BOCOM International in Beijing. Alibaba.com may see its growth slow as a weaker global economy means fewer Chinese exporters pay to use the site to sell their goods abroad, she said before the announcement.
“Privatizing the Hong Kong-listed unit will help the Alibaba parent’s plans for the IPO,” Gu said.
Any potential IPO for Alibaba Group is “several years” away, Alibaba.com’s Wu said yesterday.
Alibaba IPO
In 2007, Alibaba.com held a $1.7 billion offering in Hong Kong, then the biggest IPO for an Internet company since Google Inc.’s in 2004. The sale price matched yesterday’s HK$13.50 buyout offer.
Alibaba.com had about $1.8 billion in cash and short-term investments at the end of December.
Yahoo is the biggest shareholder in closely held Alibaba Group with a stake of about 40 percent. Alibaba sold the holding in 2005 for $1 billion and ownership of Yahoo’s Chinese unit. Tokyo-based Softbank Corp. owns about 30 percent of the Chinese company. Softbank spokesman Fumihiro Ito and Yahoo Japan spokesman Toru Nagano declined to comment after Alibaba’s announcement.
Yahoo, eclipsed by Google Inc. and Facebook Inc. in online search and advertising growth, is reviewing proposals to unwind its Asian investments and focus on turning around the main Internet business. The value of Yahoo’s Asian assets is about $11.5 billion, according to Sameet Sinha, an analyst at B. Riley Co. in San Francisco.
–With assistance from Rishaad Salamat in Hong Kong, Yuki Yamaguchi in Tokyo and Katrina Nicholas in Singapore. Editors: Michael Tighe, Frank Longid, Neil Denslow
To contact the reporters on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net; Wendy Mock in Hong Kong at wmock3@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net