DISCUSSION ABOUT THE PROCESS OF ALIBABA`S IPO 4
Discussionabout the Process of Alibaba`s IPO
Discussionabout the Process of Alibaba`s IPO
Oneof the largest IPO’s (Initial Public Offers) in the history of theNew York Stock Exchange is, with no doubt, Alibaba Group Holding LtdIPO on Labor Day this year. Founded in 1999, Alibaba connects sellersand buyers of commercial and industrial goods and services in China,one of the world’s largest economy. Underlining its monstrosity isthe fact that its Taobao unit has been ranked the largest onlineshopping portal in the country, while its Tmall Group makes up thelargest business-to-consumer platform in China. Having recorded $2.5billion in its second quarter, an increase of 46% from the previousyear, there are questions regarding why Jack Ma, the company’sfounder, would want to be answerable to shareholders. There arevaried reasons why Alibaba went on IPO. First, Alibaba needs to fillsome portfolio gaps (McDougall, 2014). As much as the company may beleading in varied fundamental categories in the Chinese market, itpotential for growth is limited by its inability to enhance itspresence in some important footholds. The company may have acquiredone of China’s top mobile browser developer but it is necessarythat it does more to be a player in mobile, social media and cloudtechnology among other crucial categories. Second, the company needsmore funds for expansion into other parts of the world, especiallyNorth America, but it is yet to have sufficient infrastructure, brandawareness or even partners in the United States (McDougall, 2014).Purchasing other companies such as Yahoo would require funds.Further, this IPO provided the company with a platform to enhance itsbrand awareness, a feat that it has already achieved given that quitea large number of people did not have an idea regarding the companyuntil it went on IPO (McDougall, 2014).
However,Alibaba failed to list in the Hong Kong stock exchange as a result ofthe stringent rules in the market that requires one shareholder tohave one vote. Instead, it wanted a market that would allow Alibabato continue having the capacity to nominate the majority of the boardeven after the listing.
AlibabaIPO had a total of six underwriters including four banks namelyCitigroup, J.P. Chase & Co, Deutsche Bank AG and Morgan Stanley.Other lead underwriters included Credit Suisse Group and GoldmanSachs Group Inc. These underwriters may offer varied servicesincluding providing advice regarding the efficacy of sellingsecurities, when such sales should take place and the price for thesame (Mishkin & Eakins, 2014). Further, it assists in the fillingof the varied documents needed by Securities and Exchange Commission(SEC), as well as offering to buy the shares of the company if theyare not fully subscribed before issue (Mishkin & Eakins, 2014).
Therewere varied fees that were associated with the IPO of this company.It is noted that the company was expected to play 1% of its over $15billion that it was to raise in the IPO. This was to be paid to theunderwriters and included the incentive fees that were to partly besubject to the size of the eventual IPO. This means that theunderwriters were supposed to collect over $300.4 million asunderwriting commissions.
Needlessto say, the company would not have been as successful as it was inthe IPO without some level of marketing. Marketing allows for anincrease in the levels of awareness for a particular company in itstarget market. Prior to the IPO, investor enthusiasm for the massiveoffering was whetted by its IPO road show, which was why it raisedthe IPO price from the 60-66 range to 66-68 (Booton, 2014). Furthermarketing was done by the company’s chairman or founder Jack Ma,who outlined its plans to engage in aggressive expansion in Europeand the United States after its debut.
Offeringthe company’s shares in the NYSE definitely enhances the company’scorporate strategy especially with regard to expansion in other partsof the market. Indeed, the IPO injects new capital and creates morecompany awareness in its potential markets, thereby enabling itscapacity to expand.
Booton,J (2014). Alibaba Roadshow woos U.S Investors. Market Watch, webretrieved fromhttp://www.marketwatch.com/story/alibaba-roadshow-woos-us-investors-2014-09-16
McDougall,P (2014). Alibaba IPO: 5 Reasons Why China’s E-Commerce Giant IsGoing Public. International Business Times. Web retrieved fromhttp://www.ibtimes.com/alibaba-ipo-5-reasons-why-chinas-e-commerce-giant-going-public-1690759
Mishkin,F.S & Eakins, S.G (2014). FinancialMarkets and Institutions.New York: Pearsons Inc