Yahoo last night raised $147 million from the sale of a block of shares in Hong Kong-listed Alibaba.com. Surprisingly, the deal came only four trading days after the company's founding chairman, Jack Ma, sold about $35 million worth of stock, causing a slide in the share price that it has yet to recover from in full.
And given that Yahoo is deemed to be a controlling shareholder in the company by virtue of its large shareholding in parent company Alibaba (which owns 74% of Alibaba.com) the sale may have given rise to some of the same concerns as when the chairman sold his shares last week -- i.e. do these guys think the share price is at a peak?
Last night's deal also had to contend with the fact that many investors are reserving their money for the multitude of Hong Kong IPOs that are currently in the market. Adding to its challenges, there was an emerging typhoon in Hong Kong last night. When the deal launched just after 5pm local time, the weather observatory issued an alert saying it would raise the typhoon No. 8 signal by 6pm -- the level at which people are supposed to seek shelter in a safe place. Many potential investors were therefore already on their way home and may not have been entirely focused on a new investment.
But Alibaba.com, which operates the leading global online marketplace connecting Chinese exporters with international importers, is a solid name that is benefitting from the economic recovery, and the deal did get done, although the price had to be fixed at the low end of the range.
The 57.481 million shares, which comprised Yahoo's entire direct stake in the company, were offered at a price between HK$19.80 and HK$20.30, representing a 4% to 6.4% discount versus yesterday's close of HK$21.15. UBS was the sole bookrunner.
The price was fixed at HK$19.80 for the maximum discount of 6.4% -- a fairly weighty discount for a deal that accounts for only 1.1% of the share capital and about four days of trading volume.
Last week's smaller placement was offered at a tighter discount of 3%-4% and that deal was also priced at the top of the range for a final discount of just 3%. The day after that deal, which was led by Goldman Sachs, Alibaba.com's share price slid 6.7%, however, and even with a recovery over the past two trading sessions -- the stock was up 3.7% yesterday -- the share price is still 2.3% below the HK$21.65 close on the day of last week's deal.
According to a source, this latest deal attracted about 25 investors. Perhaps due to the weather, there were fewer long-only investors in the book than is typical for a deal this size, but in their absence, high-net-worth individuals and hedge funds stepped in to ensure the deal was fully covered.
Alibaba.com's share price has gained 477% from its lows in late October last year and is still close to its 12-month closing high of HK$21.90 where it finished the day before Jack Ma chose to monetise some of his holdings.
Yahoo bought the shares in Alibaba.com's initial public offering in October 2007, paying HK$13.50 per share, or a total of $100 million. This indicates it made a profit of just over 46% from the investment. As one of eight cornerstone investors, Yahoo agreed not to sell any of its shares for 24 months from the trading debut on November 6, 2007, and the fact that it has been allowed to divest them slightly earlier -- perhaps to avoid a selling rush when the lockup expires -- could suggest that the other cornerstones may have received similar waivers. The other seven investors, which include AIG Global Investments, Cisco Systems, Foxconn, Industrial and Commercial Bank of China and three Hong Kong tycoons, invested a combined $200 million, meaning they are sitting on about 115 million shares, worth about $314 million at today's share price.
In the second quarter this year, Aliababa.com posted a 24% increase in sales to Rmb908.3 million ($133 million), but because of increased marketing spending and the introduction of lower-priced services, the bottom line fell 34% to Rmb260.7 million.