We are only a month away from the highly anticipated IPO of China’s e-commerce giant, Alibaba, when the company says, “Open Sesame,” to anxious investors. Today, however, a cloud is forming over the company’s debut on the New York Stock Exchange as Alibaba is hunting for thieves. There may not be 40 of them, but there is real concern that there may be some. If they do exist, they are not the mythological friends of the other legendary Alibaba.
Who Is Alibaba?
Alibaba is the child of 49-year-old Jack Ma. It is China’s – if not the world’s – largest online marketplace, featuring millions of merchants and hundreds of millions of customers, transacting more business than any other online company. Mr. Ma has a net worth of $10.5 billion. He is one of the top ten wealthiest people in China. In 2013, he was ranked 395th on the list of Forbes billionaires. He is now listed as 118th. Expect a subsequent dramatic change in that status following the scheduled 16 September IPO, which is expected to infuse as much as $20 billion into the company.
Alibaba conducted $248 billion worth of transactions in 2013, more than Amazon and eBay combined. More than 80% of the online commerce in China is conducted on Alibaba’s complete spectrum of businesses. The company operates on a profit margin in excess of 40%
Who Are the Thieves?
We don’t know yet. Alibaba announced today that it had suspended trading of shares of its recently acquired subsidiary Alibaba Pictures, formerly known as ChinaVision Media Group. Alibaba acquired the group for $800 million in June. It announced today that it had discovered “certain possible noncompliant treatment of financial information.” Making it clear that these irregularities had occurred prior to the acquisition, the company said that it “Fully supports the new management of Alibaba Pictures as they thoroughly review and rectify the possible financial noncompliance they have found with the former ChinaVision,” and that, “The new management team has a firm commitment to transparency, good corporate governance, and investor protection, and the actions they have taken are consistent with this commitment.”
How Does This Affect the IPO?
It’s probably too early to tell, even though it’s only a month away at this point. While it could draw attention to a weakness in Alibaba’s due diligence in its acquisition process, it will not likely be an overwhelming concern for potential investors. On the other hand, one observer noted that “People will take a look at their (Alibaba’s) future M&A more carefully. They have to strengthen their corporate governance so that it’s subject to increased checks and balances.”
It also remains to be seen how well or how long investors will subscribe to Jack Ma’s operating principal of “Customers first, employees second, shareholders third.” Shareholder concern aside, that commitment has made Alibaba what it is today. Its success speaks for itself.
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