Chinese e-commerce giant Alibaba Group Holding Ltd. BABA 8.64%increase; green up pointing triangle said it plans to split itself into six independently run companies that could seek separate IPOs, effectively dismantling a business empire built over two decades by charismatic entrepreneur Jack Ma just as the tycoon reappeared in China.
The reorganization of one of China’s largest private companies, once valued at over $800 billion but now worth about a quarter of that, comes after Chinese authorities signaled in recent months they were winding down a sweeping regulatory clampdown aimed at reining in the country’s powerful tech sector.
Mr. Ma, a co-founder who built Alibaba into one of the world’s biggest e-commerce companies on China’s rising affluence, was once known for his outspoken views. But since China embarked on its campaign to tame internet companies, the billionaire has largely kept a low profile and remained abroad. He returned to mainland China in recent days for the first known time in almost a year, visiting a school in the eastern city of Hangzhou where Alibaba is based.
Alibaba’s restructuring culminates a yearslong shift inside the company to make it more nimble after Mr. Ma stepped back from the company’s helm in 2019. It reverses a centralization drive he embarked upon before his departure in which he sought to bring the company’s subsidiaries and affiliates into closer alignment, part of the so-called Alibaba Economy.
The power of tech titans such as Mr. Ma and their influence over society caused unease in Beijing: Companies such as Alibaba have a grip on data of more than a billion users and investments across a wide range of companies in China. Beijing has in the past criticized the “disorderly expansion” of the country’s biggest internet companies.
“If you don’t change yourself, you will be defeated by the times,” Alibaba Chairman and Chief Executive Daniel Zhang said in a letter to employees reviewed by The Wall Street Journal. He added that Alibaba’s various businesses are facing different challenges and market conditions.
Under the restructuring, Alibaba’s various businesses will be split up into six major areas: cloud computing, Chinese e-commerce, global e-commerce, digital mapping and food delivery, logistics, and media and entertainment, the company said Tuesday.
Each business group would have its own CEO reporting to a board of directors and be fully responsible for the group’s performance. Alibaba Group is set to become a holding company overseen by Mr. Zhang.
Those business groups will be allowed to raise external capital and seek initial public offerings when they are ready, Alibaba said. Its domestic commerce business will remain a wholly owned unit of Alibaba, it added.
Mr. Ma was listed as a committee member of Alibaba Partnership, a strategy-making body of senior executives, in the company’s latest annual report published last July. He held less than 5% in Alibaba Group at the time.
In 2021, the Journal reported that Mr. Zhang had been delegating more power to the heads of Alibaba’s various business units, which had the potential to open the way for spinoffs and independent fundraisings.
The move echoes previous sweeping reorganizations by Western tech giants such as Google, which created Alphabet Inc. as a holding company while separating its growing cast of businesses.
Still, the holding-company structure isn’t common for Chinese tech giants. In 2021, TikTok parent ByteDance Ltd. reorganized its operations, formerly divided by functions, into six business units that now focus on different product lines.
Alibaba’s split comes after Mr. Ma reappeared in China and at a time when Beijing is seeking to revive entrepreneurs’ confidence following more than two years of regulatory clampdowns and Covid-19 restrictions. The announcement wasn’t related to his return, people inside the company said.
The listing status of Alibaba’s shares in New York and Hong Kong won’t be affected, people familiar with the matter said. Alibaba’s American depositary receipts climbed more than 9% in premarket trading on Tuesday in New York.
Beijing started to crack down on the Chinese tech sector in late 2020, calling off Ant Group Co.’s blockbuster IPOs. The cancellations came after Mr. Ma’s speech at a financial forum drew the ire of regulators by criticizing their work as anachronistic. Regulators subsequently launched a probe into Alibaba for alleged anticompetitive behavior on its e-commerce platform and later hit the company with a record $2.8 billion fine.
Regulators also slapped hefty fines on other tech giants over issues including antitrust and data-security breaches, erasing more than $1 trillion in market value from China’s largest publicly listed tech companies.
Hopes that regulatory headwinds may be easing began to build as the country’s top brass sounded more conciliatory toward private businesses. But tighter oversight has become the new normal, and in January, Chinese authorities acquired a stake in a subsidiary of Alibaba. The sudden disappearance of star investment banker Fan Bao recently sent shivers through China’s business community.
Like many large tech companies that are burgeoning conglomerates, Alibaba has expanded its ecosystem by offering consumers and businesses multifaceted services, from shopping and travel to payments and logistics.
Since 2020, Alibaba has been establishing subsidiaries based on business functions. Apart from the six companies, other businesses could be regrouped as similar independent entities in the future while teams such as research, data management, finance and human resources will be spread across subsidiaries, Mr. Zhang said in his letter to employees.
“This transformation will empower all our businesses to become more agile, enhance decision-making and enable faster responses to market changes,” he said.
Mr. Zhang is set to continue to lead the cloud-computing division, as the company gears up to grow its business into global markets and in the artificial-intelligence arena.
Source Wall Street Journal
BDST: 2047 HRS, MAR 28, 2023
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