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    Home » Sections » Investment » What’s behind Alibaba’s split into six parts

    What’s behind Alibaba’s split into six parts

    Alibaba Group is planning to split into six units and explore fundraisings or listings for most of them.
    By Agency Staff29 March 2023
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    Alibaba’s Jack Ma

    Alibaba Group is planning to split into six units and explore fundraisings or listings for most of them, it said on Tuesday, in a major revamp as China vows to ease a sweeping regulatory crackdown and support its private enterprises.

    The US-listed shares of the Chinese e-commerce conglomerate, which have lost nearly 70% of their value since the curbs were imposed in late 2020, rose more than 10%.

    Alibaba said the biggest restructuring in its 24-year history would see it split into six units: Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics Group, Global Digital Commerce Group and Digital Media and Entertainment Group.

    The revamp comes a day after Alibaba founder Jack Ma returned home from a year-long stay abroad

    The revamp comes a day after Alibaba founder Jack Ma returned home from a year-long stay abroad, a move that dovetailed with Beijing’s effort to spur growth in the private sector after two years of crackdowns.

    Analysts said the breakup could ease scrutiny over the tech giant whose sprawling business has been a target of regulators for years.

    “The original intention and fundamental purpose of this reform is to make our organisation more agile, shorten decision-making links and respond faster,” CEO Daniel Zhang said in a letter to staff. Each business group, he said, had to tackle the rapid changes in the market and each Alibaba employee had to “return to the mindset of an entrepreneur”.

    Zhang will continue as chairman and CEO of Alibaba Group, which will follow a holding company management model, and also serve as CEO of Cloud Intelligence Group. Each of the six businesses will have a CEO as well as a board of directors and will retain the flexibility to raise outside capital and seek an initial public offering, the company said.

    Allays concerns

    The exception would be Taobao Tmall Commerce Group that handles China commerce businesses and will remain a wholly owned unit of Alibaba Group. The company would “lighten and thin” its middle and backoffice functions, Zhang said, but did not detail job cuts.

    Investors said the split signals the clearing of regulatory worries and allays concerns that Alibaba had lost the potential to grow. The decision could also be partly a fallout of the US scrutiny of Chinese tech firms that raised national security concerns over TikTok and its parent ByteDance, said Tara Hariharan of emerging market hedge fund NWI Management.

    “By paving the way for Alibaba’s various new units to list, the Chinese government may be signalling less hostility towards its tech giants as a placatory message to US and international investors,” said Hariharan, MD of global macro research.

    The restructuring is among the biggest corporate moves by a major Chinese tech company in recent years, as the industry cowered under tighter regulatory oversight, causing deals to dry up and dampening risk appetite among businesses.

    Lately, authorities have been softening their tone towards the private sector as leaders try to shore up an economy battered by three years of strict Covid-19 curbs. Companies, however, have been hesitant, privately pointing to a lack of new supportive policies and the new regulatory framework.

    China’s new premier, Li Qiang, had recognised Ma’s return to the mainland could help boost business confidence among entrepreneurs and since late last year had begun asking him to come back, five sources with knowledge of the matter said.

    “It does seem something of a coincidence that this is happening just as Ma seems comfortable returning. To me it suggests something that Alibaba has been wanting to do for some time, but has been waiting for the opportunity,” said Stuart Cole, head macro economist at brokerage Equiti Capital.

    Read: BCX secures rights to Alibaba Cloud solutions in South Africa

    The restructuring “does inject an element of flexibility and adaptability into the company, which currently is something of a behemoth,” he said.  — Josh Horwitz, Lavanya Ahire, Tiyashi Datta, Medha Singh and Tom Westbrook, (c) 2023 Reuters

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