Ali went to the knife again: why stop the spin-off rookie IPO?

Since the first half of 2023, the organizational changes promoted by Alibaba have been almost detailed to the daily unit, and in such a situation of changes in the macro environment and surrounded by competitors, "change" may be the only constant.

Recently, rumors of divesting the assets of Hema and RT-Mart are rampant, and Ali is still busy coping. On March 26, the validity period of the prospectus submitted by another important platform, Cainiao, on the Hong Kong Stock Exchange expired.

In the morning, astute investors had noticed this and began to speculate whether Cainiao, like SF, would also wait for the opportunity to sprint back into the capital market.

The results were unexpected, and on the evening of March 26, Alibaba announced that Cainiao had withdrawn its IPO application on the Hong Kong Stock Exchange. At the same time, Alibaba plans to make an offer to Cainiao's minority shareholders to acquire the remaining 36.3% stake for a total consideration of up to US$3.75 billion.

In an emergency conference call held later in the morning, Alibaba's new chairman of the board of directors, Joe Tsai, officially responded, saying that the withdrawal of Cainiao's IPO application was both strategic and valuation considerations.

In particular, he emphasized the former consideration, saying that Alibaba's primary goal is to "win in the e-commerce space", and to do so, it needs to restore market share and eliminate the distractions caused by Cainiao's listing.

Valuation is more practical than strategic considerations, and Cainiao's IPO raised in February this year was rumored to be below the $1 billion expected in the prospectus.

Previously, Tsai Chongxin has made it clear that the current market conditions are not ideal and cannot truly reflect the true intrinsic value of the business. In his latest call, he similarly succinctly recounted the reasoning.

Considering that cloud computing and Cainiao are considered by some investors to be one of the few high-quality assets of Alibaba, it is not an unacceptable option to stop the spin-off.

Alibaba's management instead conveyed the idea that prioritizing synergies to strengthen the core business would be the best path to maximize value.

On the contrary, it is difficult to produce chemical reactions or non-core businesses, and Tsai Chongxin, as the chairman of the management committee of Alibaba Capital, has no reason not to choose to abandon them.

Later on March 26, RT-Mart's parent company, Sun Art Retail, announced that Lin Xiaohai had resigned as CEO and transferred back to Alibaba, and the market seemed to see Alibaba once again wielding a knife in his hand.

The spin-off was frustrated again

In March 2023, Alibaba announced the launch of the "1+6+N" organizational reform, which was split into business segments such as Cloud Intelligence, Cainiao, Freshippo, and Alibaba International Digital Business Group (AIDC), and proposed to go public when the conditions are ripe.

On June 20, Alibaba announced that Daniel Zhang, chairman and CEO, would step down and be replaced by Joe Tsai.

Tsai Chongxin was also appointed chairman of the Cainiao Group at that time, as a person with rich experience in investment and financing, which made it easy for the outside world to associate the rookie listing together.

Sure enough, at the end of June last year, foreign media announced that Cainiao would submit a listing application on the Hong Kong Stock Exchange in the third quarter at the earliest, and the most aggressive timetable was to complete the listing by the end of the year, with a valuation of about $15 billion to $20 billion.

On September 26, Cainiao officially submitted a listing application in Hong Kong, becoming the first business segment to be spun off after Alibaba's "1+6+N" reform. Another sector that has also reported listing news is Hema Horse, but the latter has not taken a substantial step forward.

According to the performance data, in the three fiscal years from 2021 to 2023 (the deadline is March 31 of each year), Cainiao's revenue was 52.7 billion yuan, 66.9 billion yuan and 77.8 billion yuan respectively, the net loss ratio was 3.9%, 3.4% and 3.6% respectively, the operating loss was 1.25 billion yuan, 1.30 billion yuan and 1.70 billion yuan respectively, and the net loss increased from 2 billion yuan in fiscal 2021 to 2.8 billion yuan in fiscal 2023.

In February this year, market sources said that Cainiao would obtain the China Securities Regulatory Commission's overseas listing filing notice as soon as this month, and is expected to complete the IPO in the first quarter. However, the total amount raised may shrink to less than $1 billion, which is lower than the $1 billion expected in the official prospectus.

In Alibaba's fourth-quarter fiscal 2023 conference call held in early February, Tsai Chongxin was also asked about the potential IPO progress of Hema and Cainiao, and Tsai's words at that time had released considerable uncertainty.

Viewpoint New Media understands that Tsai Chongxin said at the time that part of Alibaba's goal when announcing the restructuring in 2023 was to take measures to ensure that the intrinsic value of each business unit could be reflected in the group's valuation, which clearly discussed the divestment of assets and the financing of business units such as Hema and Cainiao.

"But we also cautioned when announcing [the spin-off] that all of these transactions depend on market conditions. The current market conditions are not ideal, and we believe that they do not truly reflect the true intrinsic value of these businesses. ”

Such a statement has laid the groundwork for the invalidation of the rookie prospectus and the announcement of the withdrawal of the listing application a month later.

In a conference call on the evening of March 26, Tsai Chongxin still said that considering Cainiao's strategic role and future plans within Alibaba Group, as well as the current challenging IPO market environment, the group believes that the current or foreseeable future IPO is not in line with the group's development strategy.

"Any valuation that can be achieved through an IPO cannot reflect the true strategic value of Cainiao. ”

Another path

According to Alibaba's latest announcement, it plans to make an offer to Cainiao's minority shareholders (including employees) to sell its remaining 36.3% stake in Cainiao at a price of US$0.62 per share, for a total consideration of up to US$3.75 billion.

Tsai Chongxin explained that with the change of Cainiao's IPO plan, Alibaba believes that it is necessary to stabilize the morale of Cainiao's employees and ensure smooth operations, and believes that the tender offer and additional employee incentives can ensure employee stability. It also pointed out that for other minority shareholders, the offer could provide them with the opportunity to exit due to the longer expected investment period of Cainiao.

Cainiao's current valuation is only US$10.3 billion, far lower than the US$15 billion to US$20 billion reported last year, not to mention companies such as SF Express (with a market capitalization of 185.7 billion yuan). However, SF Express also faced the challenge of the invalidation of its prospectus at the end of February, and the market said that it may reduce its fundraising from $2 billion to $3 billion to $1 billion to $2 billion before resubmitting the application.

According to Guandian New Media, Tsai Chongxin denied investors' speculation that Cainiao's withdrawal of IPO application was related to the relevant decision of the regulator. He said that this was a completely internal decision, with two main considerations, one being strategic and the other being the valuation considerations mentioned above.

In particular, he prefers to articulate strategic considerations, emphasizing that Cainiao provides unique value logistics services to Alibaba's domestic and international e-commerce businesses, and that the Group has evaluated its Chinese and international e-commerce businesses over the past few months and concluded that in order to provide the most competitive consumer experience, Alibaba must achieve deep integration between Cainiao's operations and the Group's e-commerce business.

According to the data, in the 2021-2023 fiscal year, Cainiao's international logistics business contributed revenue of 29 billion yuan, 35 billion yuan and 36.9 billion yuan respectively, accounting for 55%, 52% and 47% of the total revenue in the same period, respectively.

"From Alibaba's point of view, the primary goal is very clear, which is to win in the field of e-commerce. To do this, we need to regain market share and drive business growth. ”

Tsai also mentioned that Alibaba sees a new opportunity, that is, Cainiao will expand its global logistics network through continuous investment in infrastructure and become a leading platform to serve global customers. Executing such an expansion plan requires patience and long-term vision for long-term investment, and for this reason, Alibaba decided to eliminate the distractions caused by the rookie listing process.

"To empower Cainiao's management, we need to focus on the e-commerce business, achieve synergies with the e-commerce business, and execute Cainiao's long-term global expansion plan. ”

In fact, this is what Alibaba's new management has come to after reviewing its core business over the past few months: "Focusing on synergies between companies within the group for now would be the best way to reflect the value of the entire Alibaba Group." ”

Previously, Tsai Chongxin revealed that Alibaba has set up special project teams in many fields to ensure the generation of synergies.

Cainiao is mainly expected to create synergies with Alibaba's international cross-border e-commerce business, which is part of Alibaba's core business, and Alibaba's international digital commerce (AIDC) grew 44% year-on-year to 28.5 billion yuan in the fourth quarter of 2023, with the company specifically mentioning AliExpress's Choice, which was launched in early March last year to attract merchants through a "full custody" model.

According to the management's thinking, Cainiao is an important party in the AliExpress Choice model, and Ali hopes that Cainiao can be further fully and completely integrated into the international cross-border e-commerce business, "Cainiao business needs to be further consistent and consistent with these (cross-border e-commerce) businesses."

Non-core assets

Despite the "1+6+N" architecture, Alibaba's top priorities in the development plan are really only two core businesses: driving the growth of e-commerce and cloud computing.

In terms of e-commerce, in an investor call in February, Wu Yongming, the group's CEO in charge of Taobao and Tmall Group (TTG), emphasized that TTG still has the largest share of GMV in China's e-commerce market. In 2024, Alibaba will comprehensively upgrade TTG's capabilities, which will also be a year of significant investment, prioritizing commodity supply, competitive price power and advantages, and quality services.

Alibaba International Digital Commerce (AIDC) has achieved growth across all retail platforms, with overall revenue better than expected for six consecutive fiscal quarters, and plans to continue to maintain rapid growth momentum in the future, so it will continue to increase investment and expand its business scale.

Cainiao's revenue increased 24% to $28.5 billion in the fourth quarter of last year, mainly due to growth in cross-border logistics fulfillment solutions, and adjusted EBITDA was approximately $961 million, compared to a loss of $12 million in the year-ago quarter. Alibaba highlighted that the business has "achieved strong synergies" with the cross-border e-commerce business, and will increase Cainiao's cross-border logistics capabilities to support Choice's growth.

Businesses other than e-commerce and cloud computing were less than ideal, with revenue from Alibaba Local Services Group and Digital Media & Entertainment Group up 13% and 18% respectively in the fourth quarter, but Adjusted EBITDA was still in the loss stage, with the Digital Media & Entertainment Group even widening its loss from 391 million yuan to 517 million yuan, while revenue from other segments fell 7%, and its adjusted EBITDA loss widened from 1.7 billion yuan to 3.2 billion yuan.

The uneven development of the business has made Alibaba pay more attention to its core business, making strategic investments and selling non-core assets.

In May 2023, Alibaba disclosed that the board of directors approved the establishment of a new "capital management committee" responsible for the preparation and implementation of comprehensive asset management, which was originally chaired by Daniel Zhang and then led by Tsai Chongxin after Daniel Zhang faded out. In the first nine months of fiscal 2024, the company completed a total of $1.7 billion in non-core asset exits.

Tsai had already announced in February that Alibaba was very active in paying attention to listed securities and had set up a dedicated team to execute capital market sales transactions and exit these listed securities. In addition, Alibaba has some traditional brick-and-mortar retail businesses on its balance sheet, which are not core concerns, and "it makes sense for us to exit these businesses."

As a result, since the beginning of this year, Ali has successively announced plans to sell assets such as Yintai Commercial, RT-Mart, and Freshippo, of which RT-Mart is estimated to be about 10 billion yuan, and Hema is estimated to be about 20 billion yuan; on March 22, the Hong Kong Stock Exchange showed that Ali completed the sale of 33 million ADS shares of Xiaopeng Motors, and its shareholding decreased from 9.23% to 4.94%; on March 26, it has sold all the shares of Station B.

"Ali still has a lot of non-core assets, and we can consider it," Tsai Chongxin said in the latest call, "but we will not consider these (sales) related to express delivery." ”

The above refers to that since 2015, Ali or Cainiao has successively invested in express delivery companies such as YTO, Zhongtong, Baishi, Shentong, and Yunda, and established a huge express alliance network.

In this regard, Tsai Chongxin said that the shareholding in the express company is strategic, and Ali does not have any plans to change at present.

Other businesses are not so lucky, and in the face of efficiency and effectiveness, they are also cut in the end.

On March 26, RT-Mart's controlling shareholder, Sun Art Retail, announced that Lin Xiaohai resigned as CEO and was transferred back to Alibaba for another appointment, and his successor was Shen Hui, a veteran employee of Sun Art Retail. A week earlier, Hema founder Hou Yi also announced that he would step down as CEO.