Alibaba's temporary conference call record: Cainiao is valued at $10.3 billion, and there are two major reasons for withdrawing the IPO application

Tencent Technology News On the evening of March 26, Alibaba held an ad hoc conference call to respond to the announcement that it would withdraw Cainiao's IPO application in Hong Kong on the same day, and make an offer to acquire the equity of Cainiao's minority shareholders and the equity vested by employees. Chairman of Alibaba Group's Board of Directors Joe Tsai and CFO Xu Hong attended the conference call.

Tsai said that the withdrawal of Cainiao's IPO application was based on strategic considerations and considerations at the stage of the IPO process.

Strategically, Alibaba Group decided to let Cainiao's management focus on its e-commerce business and long-term global expansion plans, rather than being distracted by the IPO process.

In terms of the IPO process, Alibaba Group must decide whether to proceed with the IPO application due to the financial information in the Cainiao IPO prospectus has expired, and considering Cainiao's strategic role within Alibaba Group, its future plans and the current challenging IPO market environment, Alibaba Group believes that Cainiao's IPO at present or in the foreseeable future is not in line with the Group's development strategy.

Mr. Tsai also explained the consideration of buying back Cainiao's shares from minority shareholders and employees, saying that Alibaba would make a tender offer to Cainiao employees to acquire its attributable Cainiao shares, which, together with additional employee incentives, would ensure employee stability. Alibaba's takeover offer could also help minority shareholders address the uncertainties they face. He mentioned that the offer price reflects a valuation of $10.3 billion for Cainiao.

Commenting on Alibaba Group's overall restructuring plan, Tsai said, "We believe that current and foreseeable market conditions will not allow capital market transactions to optimize shareholder returns. He said that in the future, Alibaba will continue to focus on improving capital efficiency and improving shareholder returns.

In the Q&A session that followed, Tsai Chongxin and Xu Hong answered questions from the on-site organizations.

Asked by an institution how Ali will dispose of its shares in express companies after the rookie withdraws its IPO application, Tsai Chongxin replied that the shareholding in express companies is strategic, and there are no plans to make any changes at present, "We still have a lot of non-core investments, and we can consider it." According to public information, Ali has recently reduced its holdings in Bilibili and Xiaopeng Motors.

Tsai Chongxin also revealed that Alibaba is formulating a long-term investment plan for Cainiao to accelerate the construction of its global logistics network, and Ali will fully support Cainiao to make these investments.

Regarding the timetable for the repurchase of rookie shares, Tsai Chongxin said that he hopes to complete it before the time of June and July. Xu Hong said that the share buybacks will not have any material impact on the group's finances.

The following is a transcript of the Alibaba Group conference call:

(The content comes from a third-party real-time translation, if there is any doubt, please refer to the statement made by Ali's management in the original language.) ）

Joe Tsai: We announced on March 26 that Cainiao Smart Logistics Network, the logistics business of the Group, was withdrawing its IPO application on the Hong Kong Stock Exchange, and we also announced that Alibaba Group plans to offer a stake in Cainiao to a minority shareholder of Cainiao, with an investment of up to US$3.75 billion. Alibaba currently holds approximately 63.7% of Cainiao's fully diluted equity interest, including vested equity interests under Cainiao's employee stock ownership plan. I'd like to make a few thoughts on this announcement, and then we'll take your questions.

There are two important considerations for withdrawing a Cainiao's IPO application: first, strategic considerations, and second, the stage of the Cainiao's IPO process.

In terms of strategy, Cainiao is known to provide logistics services with unique value to Alibaba's domestic and international e-commerce businesses. Over the past few months, we have evaluated our e-commerce business in China and internationally and have concluded that in order to provide the most competitive consumer experience, we must achieve deep integration between Cainiao's operations and the Group's e-commerce business. From Alibaba Group's perspective, our overarching goal is very clear, which is to win in the e-commerce space, and to do that, we need to regain market share and drive business growth.

In addition, we see new opportunities for Cainiao to expand its global logistics network through continuous investment in infrastructure and become a leading platform for global customers. Executing such an expansion plan requires long-term investment patience and a long-term vision, so we decided to eliminate the distractions caused by the Cainiao IPO process and instead empower Cainiao's management to focus on the e-commerce business, achieve synergies with the e-commerce business, and execute Cainiao's long-term global expansion plan.

The second consideration is the stage of the IPO process itself. As of 26 March, the financial information in our prospectus to HKEX was out of date, so we had to make a decision on whether to proceed with the IPO application. Considering Cainiao's strategic role and future plans within Alibaba Group, as well as the current challenging IPO market environment, we believe that Cainiao's current or foreseeable future IPO is not in line with the Group's growth strategy. And any valuation that can be achieved through an IPO does not reflect what we currently believe is the value of Cainiao's true strategy.

Next, I'd like to talk about Alibaba's consideration of acquiring shares from Cainiao's minority shareholders and employees.

With the change in IPO plans, we believe it is important to stabilize the morale of rookie employees and ensure smooth operations. Alibaba will make a tender offer to Cainiao employees to acquire its vested stake in Cainiao, and we believe that together with additional employee incentives, it will ensure employee stability.

Alibaba's takeover offer could also help minority shareholders address the uncertainties they face. Since Cainiao's projected investment horizon is longer, it will take longer to achieve liquidity expectations. A takeover offer provides liquidity to a small number of investors who invested eight to ten years ago, and they have the option to accept the offer, but not the obligation to accept it.

Given Cainiao's strategic importance to Alibaba, and the significant long-term opportunities we see in building a global logistics network, we believe now is the right time for Alibaba to increase its investment in Cainiao. The offer price reflects a valuation of $10.3 billion for Cainiao, which is consistent with what we and the Advisors believe are the company's current fair value, and Alibaba's board of directors approved the offer after confirming that valuation is fair value to Alibaba shareholders.

Finally, I would like to talk about Alibaba's overall restructuring plan.

We first announced our restructuring plan in March last year, followed by our asset restructuring plan in May. Alibaba's restructuring plan, announced last year, consists of three elements:

First, we need to renovate our management team to improve our business competitiveness.

Second, to enhance the return on value to shareholders through active capital management.

Third, where market conditions allow, use the capital market to unlock the value of our subsidiaries.

Unfortunately, we believe that current and foreseeable market conditions do not allow capital markets transactions to optimize return on shareholder value. However, organizational changes to make decision-making more flexible and efficient have had a significant positive impact on our business. We believe that the effectiveness of the organizational change will be reflected in Alibaba's future operational and financial metrics.

On the capital management side, we have also made significant progress, including exiting non-core asset investments and enhancing shareholder value through dividend payments and share buybacks.

In the future, we will continue to focus on improving capital efficiency and enhancing shareholder returns.

Q&A: Let's start with the Q&A session.

Question: Can the reform of the strategy help accelerate the company's development in international e-commerce?

Joe Tsai: International e-commerce is a very important part of our business and a part of our core business. As I said before, we have two core businesses: e-commerce and cloud computing.

International e-commerce is part of the core business, and it should be said that we have been developing these international businesses very well, including AliExpress, and in recent quarters we have talked about developing AliExpress, which is to further accelerate its development through a new model called Choice. In this new model, goods are purchased directly from the factory and placed in their own warehouses, which can better control the inventory and also give consumers a more optimized logistics experience.

Cainiao is an important part of this experience, because the end-to-end logistics services provided by Cainiao include fulfillment, trunk transportation, and last-mile delivery, which Cainiao is providing all over the world. We believe that Cainiao's business needs to be further consistent and consistent with these businesses, so we believe that the management should fully focus on this business development and not be distracted by the IPO.

Question: Cainiao has an interesting opportunity as an independent company to promote the business development of cross-border e-commerce outside of the Alibaba ecosystem, because this is one of the fastest growing areas in the e-commerce field today. Now that Cainiao has decided to stay within the group, does it mean that Alibaba's own international e-commerce business such as AliExpress can profit from it, or does third-party platforms also benefit from it?

Joe Tsai: Cainiao already has some third-party services, and it is also independent in some business that is soliciting third-party customers, in multiple regions and fields, including its international business. But in the near term, you're going to see Cainiao working more closely with our AIDC business, especially across borders, and they're working hand in hand.

We also want this part of e-commerce and this part of logistics to be used as a unit of profit and loss as a whole, so that we can better control the cost structure, pricing, and customer experience, which will improve our competitiveness. As you know, cross-border business is also a highly competitive field right now.

Question: I would like to ask two questions. First, if there is any leftover in the third part of the capital market transaction, what are the remaining subsidiaries, assets? You mentioned that liquidity will become a more long-term path, for rookies, can you expand on whether you want to increase investment? and talk about patient capital support, can you expand on what it means?

Joe Tsai: If you want to restart any capital market transactions, or what is left or what is not left, I will not talk about that. This is to do capital market transactions and release value to shareholders, and there is no such environment now, at least not in Asia. The market is now in a downturn and illiquid. For us, it makes no sense for us to insist on moving forward with such a capital market transaction, because we can't achieve the goal of delivering value for shareholders, which is our current view.

You also have a question about the rookie's long-term investment plan, and we are now working on a detailed plan. I mentioned that Cainiao has such a plan, which is to increase and speed up the construction of a global logistics network, so that it has the ability to send packages from anywhere to anywhere, and it can be completed within 72 hours, which is their vision, this is their goal. This requires large, substantial investments, in different parts of the world, and in different parts of the logistics value chain.

In this process, Alibaba Group will leverage our strong balance sheet and cash flow generation capabilities, and we will fully support Cainiao in making these investments." I talk about having to be patient with capital because these investments take a long time to pay off. We are also looking at the prospects of global e-commerce with a long-term vision, today it is already a considerable market, and we have also seen many companies enter this market, and they are adopting aggressive development strategies. In the future, this market will become even bigger, and we will definitely participate in it.

Question: Thank you management for accepting my question, and thank you for mentioning that you are already very active in capital allocation. We have recently noticed that Alibaba is selling some assets, such as selling Bilibili shares, and investors are actually paying close attention to this aspect. For example, in terms of timetable and process, when it comes to further capital allocation, what is the timetable and path for some of the assets you hold now? In addition, you also hold shares in some express companies, I will not list them specifically, but now that rookies are no longer going to the market, will you consider selling some shares of express companies? Thank you!

Joe Tsai: We believe that the shareholding of the express company is strategic, so there are no plans to make any changes at the moment. We also have a lot of non-core investments that we can think about, but we don't think about these related to express delivery. Recently, we announced the sale of a stake in Bilibili, and we also sold a stake in Xpeng Motors, which should be said to be going well. On the issue of capital allocation, what do we do with the proceeds from the sale of these assets? In the future, we will definitely report to you regularly, because we have promised that at the end of each quarter, at most one to two days, we will tell investors how we are going to implement the repurchase plan, how many shares we are going to buy, and what is the value-added effect of the share repurchase? We will make such a report every quarter in the future, and we will give you such a report in early April for the quarter ending in March. In May, we'll have another earnings call, which is to present the full-year FY2024 results, and that's when we'll hear about dividends. So in the coming months, we will have more detailed information on our progress in returning capital to shareholders.

Question: You have decided not to promote the Cainiao IPO, has regulation played a certain role? Alibaba operates in an operating environment, both domestic and international, can you talk about the regulatory environment you are facing? Thank you.

Joe Tsai: When we decided to withdraw Cainiao's IPO application, the regulators didn't play any role, it was a completely internal decision. Your second question is about the regulatory environment, can you tell us more about what you want to know about? There are many regulations in the world that we have to follow.

QUESTION: First of all, in Europe, we are seeing a tightening of regulations in Europe. Of course, the U.S. is not aimed at e-commerce, so I mainly want to ask about Europe.

Joe Tsai: In the e-commerce space, I think from a business perspective, Europe is a very interesting market. There, customers have the ability to spend, and the average order value is still relatively high, so that it can cover the cost of logistics. Therefore, we are still very interested in the European market. At the same time, the European market and the demand of European consumers are very demanding, and we attach great importance to the regulations on quality and product quality, that is, the authenticity of products and product quality. We have also established a very comprehensive compliance system to ensure that all regions in Europe are legally compliant and operate.

Question: Hi management, thank you for accepting my question. Regarding the domestic market, we see that the domestic logistics competition is becoming more and more fierce, and our competition is also lowering the threshold of free transportation, so how can rookies compete?

Cai Chongxin: Cainiao has a whole network, that is to say, it is cooperating with various express service providers, and it has such a service network, so the domestic logistics industry is indeed very competitive, and all of them are trying their best to reduce costs and improve efficiency. Cainiao, of course, is the same, that is, it is constantly focusing on operational efficiency in order to be able to provide the lowest possible price to achieve the delivery of the package. Does Toby (Alibaba CFO Xu Hong) have anything to add?

Xu Hong: As you know, the Chinese market is indeed very competitive, and everyone is reducing costs and improving efficiency. Free shipping is often a feature that comes with e-commerce, and for rookies, we have to reduce costs and improve efficiency, so in terms of Chinese user scenarios, we are also developing so many different capabilities. These capabilities built around Chinese user scenarios can also better serve the global market in the future, and our products and systems can also be applied to the global market. Although facing a certain amount of competition, this can also help rookies further consolidate their capabilities.

Question: Hello everyone, thank you for accepting my question. The first question is about the financing of AIDC, Cainiao is going to do a share buyback now, how should AIDC think about it? Will it continue to raise money? The second question is about Cainiao's buyback, what is its timetable? When do you think the share buyback can be completed, and from the perspective of financial modeling, how should we think about it?

Joe Tsai: As far as the first question is concerned, AIDC has not started to raise any funds yet, and if there is any progress, we will synchronize investors in a timely manner. In addition, the timeline for the share acquisition is expected to be completed by June and July, depending on the specific terms of our offer to minority shareholders.

Xu Hong: In terms of financial impact, the share buyback will not have any significant impact on the group's finances, because Cainiao has already been merged. We will use Alibaba Group's existing liquidity to fund this acquisition, and the goal is also to better integrate Cainiao with Alibaba's e-commerce platform, which will actually help improve the competitiveness and growth potential of our e-commerce business."