Alibaba shares closed 12% higher overnight after the Chinese tech giant announced plans to break the company into six parts to help unlock value in the company’s business units and relieve pressure from authorities.
Alibaba shares are around 70% below their HK$298 high in 2020. Alibaba is listed in the US and Hong Kong.
Alibaba, and other China tech giant, have faced pressure from Chinese authorities and the Alibaba founder Jack Ma disappeared for many months after criticising the China regulator. He later resurfaced in Tokyo.
AJ Bell investment director Russ Mould explains the opportunity for unlocking value in Alibaba’s sprawling business by allowing specific units continue as their own entity.
“Often corporate reshuffles act as a catalyst for the share price on the basis that the individual parts of the business are worth more than the whole company. Breaking up the business could unlock this hidden value.”
“As overhauls go this is about as dramatic as you could get and follows damaging crackdowns on the company and the wider sector by the Chinese authorities. It looks like Alibaba is seeking to assuage Beijing’s concerns about monopolistic behaviour.”
Six separate companies
Under the proposed breakup, Alibaba will split into six different groups, each with their own specialist area.
- Cloud Intelligence Group
- Taobao Tmall Business Group
- Local Services Group
- Global Digital Business Group
- Cainiao Smart Logistics
- Digital Media and Entertainment Group
Each entity will undergo an initial public offering and new leadership will be appointed.