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Shareholders of e-commerce giant Alibaba seek greater control and exposure with American IPO filing

May 6, 2014 at 6:15 PM EDT
A Chinese e-commerce giant called Alibaba filed an initial public offering that many experts say could rank among the largest ever. The company operates multiple businesses, including some akin to Amazon or eBay. Judy Woodruff talks to Paul Sweeney of Bloomberg Industries about the risks and reactions to Alibaba hitting the U.S. financial markets.
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JUDY WOODRUFF: You may not have heard much before today about an e-commerce giant called Alibaba, but you will before this week is out.  It’s a Chinese company that’s a juggernaut and that operates multiple businesses.

Some are similar to U.S. online marketplaces, like Amazon and eBay. Late this afternoon, Alibaba filed its initial public offering. Company officials say they plan to raise $1 billion, but many experts predict that amount will grow and say the IPO could be among the largest ever. The company’s value could easily reach more than $150 billion.

The size is noteworthy, but it’s also prompted plenty of interest about China’s own tech sector.

Paul Sweeney is an analyst for Bloomberg Industries who’s been watching this, And he joins me now.

Paul Sweeney, welcome to the program.

For those who don’t know, explain more about what Alibaba is.

PAUL SWEENEY, Bloomberg Industries: Sure.

Alibaba is by far the dominant e-commerce platform in China. So, as you mentioned, I think it’s really a combination of Amazon, eBay and even Google, if you will. So it’s really the dominant player in China. And, you know, China is the largest market in terms of Internet usage. It is an extraordinarily fast-growing Internet market. It’s an extraordinarily large e-commerce market with tremendous growth rates.

And Alibaba is actually in the middle of it all, so they really have a dominant position in e-commerce in China.

JUDY WOODRUFF: So, who owns it now? And why are they coming to the United States and the U.S. financial markets to go public?

PAUL SWEENEY: Some of the owners right now, the larger owners would be a Japanese company called SoftBank. And also Yahoo!, a well-known U.S. company, owns about 24 percent of the company right now. They are going to sell about half their holdings here in this IPO.

And then the other owners are some of the founders. Jack Ma is the founder of the company. He founded it in his apartment about 15 years ago. He’s a former schoolteacher. And he’s built this company out of scratch. They’re coming to the U.S. market for two reasons, actually.

Number one, it’s for control. Jack Ma and his partners, while they’re only minority shareholders, they want to maintain control of the company. And in the Hong Kong exchange, where they thought about going public, they were not able to come up with a structure where the regulators would allow them to control the company.

However, in the U.S., it is more common for different structures to be created to allow minority shareholders to be control shareholders. And that’s the primary reason they’re coming to the U.S. Secondarily, I think they’re coming to the U.S. markets because they want to grow their international profile amongst international investors, and by coming to the New York markets, they’re going to be able to do that.

JUDY WOODRUFF: I want to come back to this question and the fact that an American company — tech companies have had difficulty doing business in China. Will that affect what Alibaba is able to do in the U.S.?

PAUL SWEENEY: I don’t think so.

I think one of the reasons, again, as I mentioned, that Alibaba is doing its IPO in the U.S. is to gain some exposure and some — a hire profile with Western investors. So, I think, clearly, while there’s tremendous amounts of opportunity for Alibaba in China — and that is going to be their primary source of growth — I think they are interested in some international growth in North America and also in Europe.

So, again, it’s been very difficult for U.S. media companies or Western media companies, Western Internet companies to do business in China. There’s a tremendous amount of restrictions there. The government is very closed as it relates to bringing in new media into the country, so it’s been very difficult for the Western companies.

But Alibaba has a tremendous position in China. And I think now they’re starting to think about growth internationally.

JUDY WOODRUFF: So the censorship that exists in China wouldn’t have an effect on Alibaba’s ability to attract investors?

PAUL SWEENEY: No, I don’t think so.

I think the — most of the investors, when they think about the Chinese e-commerce business, I think they’re very bullish about the long-term secular growth in Internet usage in China. It’s the largest Internet market in the world. It’s the fastest growing Internet market in the world.

And it’s particularly in a favorable position for e-commerce. E-commerce in the United States is only about 7 percent of total retail sales, but it’s much, much higher in China and it’s expected to go even higher. There’s less of a retail culture, if you will, in China, i.e., let’s go shopping on Sunday. They don’t necessarily have that as much.

And, as a result, e-commerce has actually grown much faster in China than it has in a lot of the Western markets. So, the Alibaba opportunity there is tremendous. I think that U.S. and Western investors recognize that. There are very few ways for Western investors to invest in this growth story.

Alibaba will be, by far, the largest, most liquid and arguably safest investment vehicle.

JUDY WOODRUFF: And so very quickly, finally, Paul Sweeney, if this — if Alibaba turns out to be so successful, how does that affect American tech companies?

PAUL SWEENEY: Well, I think it is going to be positive for American tech companies.

Right now, the tech sector over the last several months has been experiencing a tremendous sell-off. Twitter is down almost 50 percent year to date. A lot of the big high-flying tech stocks from — and the Internet stocks in particular from 2013 have really been caught in a downdraft. Sellers have been getting out of the stocks.

A successful Alibaba IPO could turn that around a little bit in terms of sentiment.

JUDY WOODRUFF: Paul Sweeney with Bloomberg, we thank you.

PAUL SWEENEY: You bet.