ExtraOrdinary General Meeting

OCTOBER 23, 2014

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SCOPE
1.BACKGROUND
2.GOVERNANCE STRUCTURE
3.TIMING
4.PRICING METHODOLOGY
5.RECOMMENDATIONS
6.CONCLUSION

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BACKGROUND
Taobao.co
m
(C2C)

Tmall.com
(B2C)

Gross Merchandise
Volume: $164
billion
(80% of China Ecommerce Industry)

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Expansions & Acquisitions

Online Payment System
Mobile Internet Services

Partnership with Internet Industry

Acquisitions in US Markets

Total Debt : $11.7 billion

Total Asset: $17.2 billion
Total Liabilities

Expected Benefits:
Total revenue: $8.6 billion
Net Income: $3.5 billion
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Market & Competitors

Estimates by Analysts:

612 millions of Chinese Internet

users in 2014
25% of Chinas retail market will be
occupied by online retailers by 2028

Major Domestic Competitors:

Tencent: A market capitalization of

$149 billion

Baidu: 80% of Chinas search

market

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The Stock Exchange

Hong Kong (HKEx):
Pros:
o Being the home market for Mainland China
o Having the title of raising the largest IPO in the world since 2010
o Current listing technology firms constitute about 7% of all the firms
o Daily Trade Volume $64 Million
Cons:
o Dwindling demands of investors due to weaker market sentiment
o Stringent restriction and regulations for listing
o Catered to Retail Investors

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The Stock Exchange

US market: Highest market capitalization of listed firms,
with strong bullish sentiment amongst investors

NYSE

NASDAQ

Average Daily Trade Volume

$58 million

$33 million

Technology Firm Proportion

5.54%

16.34%

Positive Policies for

Attracting Technology Firms

Not Requiring two

years of profitability
for any company
listed

NASDAQ Private Market:

a platform for private
companies to trade on
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GOVERNANCE STRUCTURE
What is the partnership structure?
One share, one vote.
Right to nominate majority of the Board, subject to approval of
shareholders.
Right to appoint an interim Board, not subject to approval of shareholders.

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Culture
This structure is our solution for preserving the culture
shaped by our founders while at the same time accounting for
the fact that founders will inevitably retire from the company.

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Culture

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Valuation
Discounting of shares due to a dual class structure tends to
disappear in bull markets or when investors perceive they have
an opportunity to co-invest alongside a business or tech
luminary
Deloitte

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Agency Costs of Equity

Agency
Problem
s

Agency
Costs

Litigation
Costs

Insurance
Costs

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TIMING

An IPO is significant in the life cycle of a company,

but when is the right time?

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Expansion Opportunities
Future acquisitions of firms that provide synergies
Increasing Liabilities
Opportune for restructuring
Prevents debt eroding value

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Investment Climate
Investors appetite to risk correlates to investment climate
Post Subprime Recession
Improved Market Indices
Overly optimistic Investors
DJI NASDAQ S&P 500 HSI

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Financial Stability
Strong financial stability is associated with increased demand
and valuation
Asset Size of $17,222 Million
Expected Revenue in 2014 of $8.6 Billion
Matured operations (15 years)
Cash and cash

As of December 31, 2013

(in millions)
7,876

Current bank borrowings

193

equivalent
Investment securities

2,463

Secured borrowings

1,429

Property and

961

Redeemable preference

equipment (net)
Goodwill and

2,131

shares
Non-current bank

4,862

intangible assets

borrowings
Total liabilities

11,712

Convertible preference

1,647

shares
Others

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Total mezzanine equity

Total equity

1,667
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3,843

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PRICING METHODOLOGY
Multiples of EBITDA
Estimation of Investors market valuation using EBITDA approximating cash flow

Benefits

Readily available comparisons with industry competitors

Determine the pricing differences between the two exchange
Approximates cash flow relevant to investors
Ignores forecast estimation based on assumptions

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Market Capitalization Analysis

Hong Kong Exchange
Competitors

Enterprise Value/EBITDA(ttm)

New York Exchange

Competitors

Enterprise Value/EBITDA(ttm)

Tencent Holdings (China)

34.59

Amazon (US)

35.9

HC International (China)

30.07

EBay (US)

13.18

Kingsoft Corporation (China) 25.93

SINA (China)

16.73

China Binary Sale

16.48

Baidu (China)

28.84

Industry Average

26.76

Industry Average

23.66

Alibaba Enterprise Value

102,685 million

Alibaba Enterprise Value

90,769 million

Alibaba Market

86,933 million

Technology Ltd (China)

Alibaba Market
Capitalization

98,849 million

Capitalization was derived by taking Enterprise Value + Cash and Equivalent - Debts

Capitalization
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Alibabas Needs
Assumptions
Outstanding shareholders volume = 2.296 billion
Intention to raise 20 billion

Estimated to raise 450 million to 500 million shares

$43 and $37.86 per share in Hong Kong Exchange and US
Exchange

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Listing Requirements
Market
Capitalization

NYSE

HKEx

NASDAQ

HK$ 200 Million

HK$ 4 Billion

US$ 75 Million

HK$ 50 Million

US$ 20 Million

Market Value of US$ 60 Million

Public Share

Fulfils Listing Requirements

No restrictions choosing between the 3 exchanges

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RECOMMENDATIONS

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Recommendations
Alibaba should uphold their belief of having a partnership
structure

Partnership Structure Benefits > Cost

Maintains Culture
Increases Valuation
Minimized Agency Cost

Alibaba should be listed within this month to take advantage of

current bullish climate

Uncertainty to when bullish trend will end

Uncertainty to when US will increase interest rates

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Recommendations
Optimal price per share in US is recommended to be higher
than $45.43

Base Price per share was estimated at $37.86

Price did not account for value creation

Governance Structure
Larger Investor Exposure
Prolong Optimism in Market

Price against % Change Due to Other Variables

60
50
40

0; 37.86

30
Optimistic Adjustment to pricing when needed
20
10
0

Price

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Recommendations
NYSE as the favoured choice

Strict Corporate Governance guideline (lacking in Nasdaq)

Strong Legal Environment in US (lacking in HK)
Better Visibility among investors

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CONCLUSION
Alibaba to follow through IPO now
Alibaba to list on NYSE
Alibaba to list with a minimum price of $45.43

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Thank You

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