China’s Alibaba Unveils Corporate Restructuring

Alibaba, the Chinese e-commerce and media group, unveiled a top to bottom corporate restructuring that it says is intended to “unlock shareholder value and foster market competitiveness.” 

The group, which has a current market capitalization of $228 billion, will split itself into six divisions of differing sizes. Each unit will have a CEO and a board of directors and can pursue independent fund-raising or even IPOs, when they are ready.

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At present Alibaba has its shares and ADR shares listed in Hong Kong and New York. Some parts of its media business also have their own Hong Kong share listing Alibaba Pictures. (And there is a healthcare business with yet another share quote.)

The six new business clusters will be: Cloud Intelligence (cloud computing, AI and its Slack equivalent Ding Talk); Taobao Tmall Commerce (mainland China e-commerce and digital malls); Local Services (navigation and delivery); Cainiao Smart Logistics; Global Digital Commerce (international commerce); and Digital Media and Entertainment.

Fan Luyuan will be CEO of Digital Media and Entertainment, spanning Youku (China’s number three SVOD platform), Alibaba Pictures and other unspecified businesses.

“This transformation will empower all our businesses to become more agile, enhance decision-making, and enable faster responses to market changes,” said Alibaba CEO Daniel Zhang in a letter to employees and shareholders.

Alibaba will slim down middle- and back-office functions at the group level, retaining only those functions required for listed company compliance. The relevant middle and back office capabilities will transition into the relevant business groups and companies.

In the nine months to December 2022, Digital Media and Entertainment had revenue of RMB23.2 billion ($3.37 billion), a 4% year-on-year decline, and recorded EBITDA losses of RMB772 million ($112 million) – a marked improvement.

For the six months to end of September 2022, Alibaba Pictures reported revenues of RMB1.83 billion ($265 million) and losses of RMB22.9 ($3.20 million).

Alibaba restructuring was announced just a day after local media disclosed that the group’s founder Jack Ma had returned to China after traveling abroad for roughly a year.

China’s tech companies weathered a withering series of regulatory crackdowns following Ma’s public criticism of the country’s financial regulatory system in October 2020. That led to Ma’s other pet-project fintech services operation Ant Group having its IPO canceled and celebrity businessman Ma being cut down to size. Under the weight of the regulatory restrictions and China’s strict anti-COVID policies, Alibaba saw its market value collapse by more than two thirds. Its NYSE-traded ADRs currently trade at $86.12, compared with an October 2020 peak of $309.

One user comment on the Alibaba-owned South China Morning Post, Tuesday read: “he is back because 1. CCP needs private enterprises and investments and 2. the company is now broken into 6 pieces and is no longer a threat.”

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