March 28 (Reuters) – Alibaba Group Holding Ltd (9988.HK) said it plans split its business into six main units covering e-commerce, media and the cloud, adding that each of the units will explore fundraising or initial public offerings.
Alibaba’s U.S.-listed shares rose 7% in pre-market trading.
Here are comments from analysts:
ART HOGAN, CHIEF MARKET STRATEGIST AT B RILEY WEALTH, BOSTON
“When you get to a certain size and have multiple different disciplines inside your business model, it’s hard to have ascribed the value that would be the sum of the parts.”
Alibaba planned to split into six different units to ascribe an appropriate value to each of its different units, likely makes sense if they’re able to pull this off.”
XIAOYAN WANG, ANALYST AT 86RESEARCH:
“We believe that the separation of Alibaba’s businesses is a good thing for its stock price, as it will unlock value and make each business more flexible and competitive. As for regulation, we think it’s also a positive development. After the businesses are spun off from Alibaba, the regulatory risks they face may actually decrease, rather than being subject to Jack Ma’s personal risk. This will make it easier for investors to assess regulatory risks more clearly.”
DAVID BLENNERHASSETT, ANALYST AT BALLINGAL INVESTMENT ADVISORS
“This somewhat mirrors Alphabet’s path in which it also became a Holdco for a number of operations. Sounds like a sound practice for the siloed ops to independently carve out their own brand/narrative, if you will, IPO, and uplift funds to the parent.
“Although this may provide added granularity to Alibaba’s various businesses, it doesn’t necessarily translate Alibaba is more attractive if it continues to control each segment – or holding minority/equity-accounting stakes, and the market assigns discounts on discounts.
“I do wonder if there is some regulatory angle here, ringfencing some outfits that may face greater scrutiny. Interesting timing as this announcement coincides with Ma visiting China again.”
STUART COLE, HEAD MACRO ECONOMIST AT EQUITI CAPITAL, LONDON
“I am not sure how quickly Alibaba could be broken up. I am sure they have done some work on this before announcing it, but it seems quite a large job to create six companies out of one. But it does inject an element of flexibility and adaptability into the company, which currently is something of a behemoth.
“And it will allow the more successful of the six new companies to potentially raise finance more easily and cheaply than the parent company can, as they will not be burdened by the slower, less profitable parts of the business. So for investors, they get the opportunity to put their funds in the parts they like whilst avoiding the parts they do not, unlike the current situation.
“It does seem something of a coincidence that this is happening just as Jack 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 to do so.”
KENNY NG, STRATEGIST AT CHINA EVERBRIGHT SECURITIES, HONG KONG
“It releases additional value. With this expectation, investors will be more positive on Alibaba. It may reflect a new round of development for the business and reduce worries of regulatory issues.”
Reporting by Shashwat Chauhan, Josh Ye, Kane Wu, Tiyashi Datta and Tom Westbrook; Compiled by Anshuman Daga; Editing by Louise Heavens and Andrew Heavens
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