The Strategist

The largest shareholder of Alibaba to sell its stake for $ 7.9 billion

06/01/2016 - 14:54

The largest shareholder of Alibaba, for the first time invested in the company in 2000, decided to reduce its stake. It plans to sell 4% stake in the company worth $ 7.9 billion. The package of $ 2 billion will be bought back by Alibaba itself.

MIKI Yoshihito via flickr
MIKI Yoshihito via flickr
The largest shareholder of the Chinese Internet giant Alibaba Group, Japanese telecom company SoftBank Group Corp. intends to reduce its stake in the online vendor, according to SoftBank’s press release. The message states that SoftBank plans to derive at least $ 7.9 billion from the shares.

Alibaba will buy back its own ordinary shares in the amount of $ 2 billion, according to the company’s press release. Another package worth $ 400 million will be sold to Alibaba Partnership - a group that unites 34 co-founders and the company's top manager. SoftBank says that buyer of another $ 500 million-worth package will be a "major sovereign wealth fund", without specifying the organization’s name. Last package worth $ 5 billion and an option to purchase securities of another $ 1 billion will be offered to institutional investors, announced SoftBank.

In addition, SoftBank will enter into an agreement under which it will not be able to sell Alibaba shares within six following months.

SoftBank explained that the decision on the shares’ sale was taken under new strategy aimed to enhance its liquidity cushion and "flexible and economical financial management."

In a press release published on Alibaba’s website, the company confirmed that it has agreed to buy back its own shares for $ 2 billion. The company will pay in cash, the message says.

SoftBank first invested in Alibaba in 2000. Then, the investment’s amount numbered $ 20 million. Since then, Alibaba has become China's largest online retailer with a market cap of more than $ 200 billion. Thus, this investment turned out to be the most successful for founder and Head of SoftBank, Masayoshi Son.

Currently, SoftBank is the largest shareholder of the company. As of March 31, its share in Alibaba was 32.2%. The transaction will reduce its stake to about 28%, it follows from a press release. Until now, SoftBank has never cut a share in Alibaba.

Recall that the Securities and Exchange Commission is now conducting an investigation in respect of Alibaba Group Holding Ltd. The inspection was triggered by suspicions that the methods of the Chinese e-commerce giant’s financial statements could violate federal laws. The investigation’s main goal is to find out to what extent the company should increase the transparency of its financial statements. There is no doubt that it happened on the background of the fight against counterfeiting and continuation of a series of acquisitions, which creates uncertainty in the company’s profits.

It is unclear what exactly provoked the regulator to launch the inspection. Alibaba said it is cooperating with the authorities, and the Commission has asked not to consider the investigation as a sign that the company violated federal laws on the securities market.

The regulator has focused on the financial statements for the logistics company Cainiao Network, approximately 47 percent of which is owned by Alibaba. Above that, particular attention is paid to reporting, applied to transactions with related parties in general, and operating results of the annual sales on the Chinese Single’s Day.