Alibaba founder Jack Ma participates in a teleconference in Hong Kong on Oct. 22, 2007, one day before its initial public offering.
From the FT's Lex blog
Forget the folk story, the magic words for Alibaba.com investors are in fact "going private"; its parent group has just offered to buy out shareholders at the initial offering price four years ago. They should take it.
Alibaba Group's rationale for offering for the 27 per cent it doesn't own in its business-to-business website is that the site is changing direction (from chasing customer growth to selling extra services to them) which will affect earnings visibility. No kidding; it began the shift last year, since when profits, although considerable, have undershot expectations in the latest two quarters, in part because a very necessary clampdown on fraud has cost the company paid-up users to whom it can sell new services.
Trapped investors (the shares have been suspended for nearly two weeks pending this news) are being offered $13.50 (Hong Kong) a share, a 45 per cent premium to the last price. This is hardly allowing investors to "realise returns" as Alibaba claims; factor in inflation and initial owners are down 13 per cent. That of course pales next to the opportunity cost; the shares have fallen by nearly half in the past year, underperforming the Hang Seng by almost two-fifths and Bloomberg's internet stocks index by more than a third.
Still, this is a chance to get out. Initial investors doubtless hoped for insight into Alibaba's sister companies such as Taobao, China Ebay, or even a flotation of the parent group. But a private equity investment last year put paid to hopes of that and this buy out too implies no love for, or need of, the public markets. Investors in Alibaba have always been at the mercy of Jack Ma, the group's powerful founder, who has shown little hesitation previously in riding roughshod over boards. Mr. Ma has other things on his mind too; he must untangle Yahoo's one-third shareholding in his group too. There is no magic word or formula that will get Alibaba investors back their lost money.