BY Richard Summerfield
Alibaba Group Holding Limited has completed not only the largest ever US-listed IPO but also the world’s largest-ever stock market flotation.
Shares in the e-commerce giant were initially priced at $68 each. Due to overwhelming demand, the firm’s underwriters were required to take up the option to purchase an additional 48 million shares. Accordingly, the total raised from Alibaba’s offering rose from an initial $21.8bn to $25bn. Once trading began, the company’s share price soon reached $99 before finally closing at $93.89, a jump of 38 percent from the offering price.
Based on the company’s closing price on the first day of trading, Alibaba has a market capitalisation of around $230bn. This makes it more valuable than a host of other notable internet firms, including Facebook Inc and Amazon Inc. Indeed, Alibaba has become the world’s second largest internet company behind Google Inc.
A group of Alibaba's existing shareholders, including chairman Jack Ma, vice chairman Joseph Tsai and internet giant Yahoo Inc, provided the extra shares for the overallotment. Mr Ma sold an additional 2.7 million shares, taking his tolal shares sold in the IPO to around 15.5 million. Including the 900,000 shares he sold during the overallotment, Mr Tsai sold a total of 5.2 million shares. However, Yahoo gave up the most shares during the IPO, divesting around 140 million shares in total, including 18.26 million in the greenshoe. Yahoo is believed to have generated around $9.5bn in pre-tax cash from the sale, and earmarked around $6bn of the after-tax proceeds to be returned to shareholders. It is likely to undertake a number of stock buy-backs in order to facilitate the return. Some observers expect Yahoo to use the remaining cash to carry out a number of acquisitions.
The success of Alibaba’s IPO came despite lingering concerns about the company’s corporate structure. Under the firm’s variable interest entity (VIE) structure, buyers of Alibaba’s stock do not actually own the underlying business, because Chinese government regulations restrict foreign ownership in the sector. The VIE structure was established as a means of circumnavigating those regulations, and although Chinese authorities may take a dim view of the company’s use of the tactic, Alibaba’s strong level of influence may protect it from scrutiny.