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Alibaba will purchase Cainiao stake for up to $3.75 billion as it ditches IPO plan

The emblem of Alibaba Group is visible at its headquarters in Beijing, China January 5, 2021.

March 26 (mod1s) - Alibaba Group (9988.HK), opens new tab announced on Tuesday it was proposing to acquire the 36% of Cainiao it does not already control for up to $3.75 billion, scrapping plans for an initial public offering (IPO) of the logistics firm in Hong Kong.

In the Chinese e-commerce giant's latest reversal of its reorganization plan, Alibaba, which maintains a share of roughly 64% in Cainiao, said it was willing to buy the remaining stock.

"Given the strategic importance of Cainiao to Alibaba and the significant long-term opportunity we see in building out a global logistics network, we believe this is an appropriate time to double down," said Alibaba Group Chairman Joe Tsai, who later said on a call with analysts that regulatory issues played no part in the decision to pull Cainiao's IPO.

U.S.-listed shares in Alibaba climbed 0.7% in pre-market trade on the news.

Tsai noted on a recent earnings call all Alibaba's planned IPOs, including Cainiao's, "were subject to market conditions".

"The overall environment for doing capital market transactions in order to unlock value for shareholders is just not there in this part of the world," he said on Tuesday's call. "It doesn't make sense for us to grind into these capital market deals."

The Hong Kong IPO market suffered a downturn in activity in 2023, with 73 business listings generating HK$46.3 billion ($5.92 billion), down 56% from 2022.

The firm has experienced a mismatch in value expectations with possible investors, three persons familiar with the situation said.

Alibaba did not immediately react to a request for comment on any valuation mismatch but Tsai said Tuesday its offer to minority shareholders valued Cainiao at $10.3 billion.

In a statement, Alibaba said it is providing minority owners of Cainiao an option to sell all the existing shares for $0.62 per share. It intends to finish the repurchase by June or July.

Alibaba has had a rocky year since unveiling the greatest shake-up in its 25-year history by breaking into six entities. It has appointed a new CEO, announced and then abandoned listing its Cloud segment and refocused on its core activities.

Those key businesses - e-commerce and cloud - are now managed by new Group CEO Eddie Wu. Although Alibaba's domestic e-commerce sites Tmall and Taobao are still China's biggest, they have lost market share in recent years to rivals such PDD Holdings' (PDD.O), opens new tab Pinduoduo.

"We want to win in e-commerce by regaining market share and driving growth," Tsai said, deeper integration with Cainiao is crucial to that goal, he said.

Cainiao originally submitted the IPO papers to the Hong Kong Stock Exchange in September. Tuesday was the penultimate day of a six month timeframe before which it was obligated to change its listed status. No timeframe has ever been officially given.

($1 = 7.8231 Hong Kong dollars)


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