In the last week of September 2014, the financial news wires were white hot as Yahoo and Softbank-backed Alibaba priced its IPO at $68 per share, initially raising $21.8bn, before the China-based e-commerce company reported that it had sold additional shares in the company, making the listing the biggest in history.
Reuters and CNBC reported at the time that bankers of Alibaba had exercised a “green shoe” option by buying an additional 48 million shares from the company to cover stock they sold to meet high investor demand.
The move increased the value of the deal to $25bn, ranking above the $22.1bn IPO by Agricultural Bank of China in 2010 and the $22bn listing by ICBC in 2006.
Alibaba and several shareholders sold 320.1 million American Depositary Shares in the offering, and on the first day of trading on the New York Stock Exchange the company’s share price rose 38% to close at $93.89 per share.
Historic capital
The IPO also illustrated the returns that can be made by large corporate venturing investments in high-growth companies. In January 2015, internet company Yahoo said it planned to spin off its 15% stake in Alibaba into a separate company.
Yahoo paid $1bn in 2005 to acquire a 40% stake in Alibaba. It sold $9.5bn of shares in Alibaba’s initial public offering in 2014, but in January this year still owned 384 million shares in the company, worth a total of about $40bn.
Yahoo intends to list the shares, together with an as yet undisclosed “legacy, ancillary Yahoo business” as an independent registered company called SpinCo. The move will enable it to avoid taxes it would otherwise be liable for through the ownership.
The deal will be pursued in the fourth quarter of 2015, once the one-year lock-up agreement concerning Yahoo’s shares in Alibaba expires.
Marissa Mayer, Yahoo’s chief executive, said: “Through share repurchases to date, we have returned approximately $9.7bn of proceeds from Alibaba. Post-spin-out, using the closing price for Alibaba as of January 26, we will have returned nearly $50bn of value to our shareholders.
“This level of capital return is historic, especially for a company of our size.” Given Yahoo’s present market capitalisation is $41bn, the deal has provided significant value for Yahoo, as its core business has at times found it difficult to compete against its dominant competitor, Google.
Softbank sees return from early investment
Japan’s Softbank Corporation has also made waves from its bold early bet on Alibaba. It invested $20m in Alibaba in 2010, and still retains a 32% stake.
Softbank’s chief executive said at the time it was “in no hurry to sell its Alibaba” stake, Reuters reported. The deal is one of 1,300 companies Softbank has backed in its search for technology winners, in a unique approach to corporate venture investing.
Shortlist
Alibaba – $25bn – Yahoo, Softbank Corporation
Lending Club – $870m – Google Capital, Norwest Venture Partners
Markit – $1.5bn – Bank of America, Goldman Sachs, Deutsche Bank, JP Morgan
Rocket Internet – $1.8bn – United Internet, Philippine Long Distance Telephone Company, Access Industries, Holtzbrinck Ventures
Truecar – $70m – USAA, Capital One, DealerTrack
