After the Ant IPO was called off,Ma disappeared from public view and was rarely sighted until,after spending the past six months based in Japan,he resurfaced in China this week. Earlier this year he agreed to reduce his voting rights in Ant from more than 50 per cent to just over six per cent.
His re-emergence,at a school in Hangzhou on Monday,coincided with Alibaba’s announcement that it is going to carve itself up into six separate groups with their own managements and boards and the potential,if they decide it is in their interests,to pursue IPOs of their businesses.
The restructure is occurring in an environment where Alibaba’s growth has been slowing,a function of its own scale and penetration within China’s economy,the impacts of the implosion in the property sector and the decimation of value in the tech sector triggered by government interventions and,of course,the chilling effect of Beijing’s “zero COVID” policies on the economy.
Alibaba,which was valued at more than $US800 billion before Ma’s fateful 2020 speech,had a market capitalisation of about $US225 billion before the announcement of the restructure added more than $US30 billion. The group had been trading at about half the earnings multiples it enjoyed before Ma’s provocative speech.
The group is reported to have presented its restructuring plan to Beijing before announcing it (it would have been foolhardy,bordering on corporate suicide,not to have done so) and been given the green light to proceed.
It is in Alibaba’s interest to make its businesses smaller targets for the authorities and the authorities would be pleased to see the group’s scale,financial clout and pervasiveness within the economy and society fragmented.
The anti-trust and concentration concerns that have been cited for the intrusive regulation of the big fintechs and e-commerce platforms will be of less relevance for Alibaba if its main business units are demonstrably independent and,in the longer term,structurally separated.
The restructuring comes at a key moment for China. Xi abandoned his harsh and growth-sapping approach to COVID-19 abruptly late last year and the rhetoric from the Chinese leadership shifted significantly from the emphasis on common prosperity to support for the private sector.
Newly appointed premier,Li Qiang,has declared his “unwavering support” for private businesses and claimed there had been an “incorrect discourse” that had caused concerns among private entrepreneurs.
Regulators,he said,“shouldn’t be only stepping on the brakes and not the gas.”
The group is reported to have presented its restructuring plan to Beijing before announcing it (it would have been foolhardy,bordering on corporate suicide,not to have done so) and been given the green light to proceed.
Despite those comments and efforts to reassure private businesses and foreign investors that it is supportive of the private sector,Xi and the Communist Partyhave tightened their grip on the economy,prioritised the role of their state-owned enterprises and increased supervision of private businesses,concentrating more authority over the economy within Beijing.
Under the planned restructure,while the core Chinese e-commerce platform,Taobao Tmall Commerce Group,will remain wholly owned by Alibaba,the other five,independently managed entities will be able to source external funding,eventually even equity.
Those businesses include Alibaba’s fast-growing cloud business,its logistics business,its media and entertainment unit (in which the government holds a golden share) and its local services unit.
Ma’s successor as chief executive,Daniel Zhang,said this week that the group needed to make the organisation simpler and more agile and,with the restructuring,each business would be able to set their own strategy to “fit their respective battlefields.”
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The strategy fits with the conventional view that conglomerates,and Alibaba contains a set of quite disparate businesses,create internal conflicts of interest in capital allocation and management attention that depress value. The response of the sharemarket to the announcement of the restructuring tends to validate the view that the restructuring will unlock that latent value.
That it might also mean that there is less interest from Beijing in the businesses’ affairs would be a significant bonus.