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A plan to split Alibaba Group Holding into six units sent the company’s stock soaring on Tuesday while introducing a potential model for global tech giants facing mounting breakup pressures.
Alibaba’s American depositary receipts climbed as much as 15 percent on Tuesday, its best performance since June, after the company announced a plan to separate its US$255 billion empire into divisions that will raise funds individually and eventually explore initial public offerings.
The move appears designed to appease Chinese regulators after a yearslong crackdown on the nation’s tech giants and could serve as a blueprint for similar firms.
“This is a game changer in terms of raising the expectations for other companies,” said Tom Masi, portfolio manager at GW&K Investment Management. “If it is consistent with the direction that the government wants them to go in and shareholders respond positively, other companies are likely to pursue the same path.”
Tencent Holdings is probably the most obvious candidate because it has so many entities that could be standalone units, Masi said. Its US-traded shares rose as much as 7,3% Tuesday. Online retailer JD.com Inc., which is planning to list its shipping unit, and Baidu Inc., which has businesses ranging from online search to autonomous vehicles, both climbed around 5 percent.
The market’s enthusiasm for Alibaba’s strategy is notable since the company has been trading at a steep discount to the sum of its parts, Morgan Stanley analyst Gary Yu wrote in a note on Tuesday. “The headline P/E is effectively implying zero value to Alibaba’s major consolidated subsidiaries and certain private and public equity investments,” he wrote. While the ADRs are trading around US$98, Morgan Stanley sees substantial potential upside as the market comes to appreciate the value of its business segments. – Bloomberg
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