TMTPost -- Alibaba Group Holding Ltd. dropped Hong Kong listing plan of Cainiao Smart Logistics Network Limited, offering to buy remaining stake in the logistic subsidiary.

Credit：Visual China

Alibaba announced Tuesday that Cainiao has withdrawn its initial public offering (IPO) application on the Hong Kong Stock Exchange. According to a statement that day, Alibaba said it plans to offer to minority shareholders of Cainiao, including employees, an opportunity to sell all of the outstanding shares of the business held by them to Alibaba  for US$0.62 per share, representing a total consideration of up to US$3.75 billion.

The statement marked end of Cainiao’s IPO plan initiated about half of year ago. A prospectus released late September showed Cainiao has applied for IPO in Hong Kong, with Citigroup Inc, Citic Securities Co., Ltd and JPMorgan Chase & Co as joint sponsors. Cainiao, a company that Alibaba holds a 69.54% stakes in, thus became the unit that is most likely to become the one that goes public.

Upon completion of the transaction of Cainiao stake, Alibaba plans to align part of Cainiao’s business to better realize strategic synergies with Taobao and Tmall Group and Alibaba International Digital Commerce Group, as well as support Cainiao to execute a long-term strategic expansion of its global logistics network, according to the statement on Tuesday.

“Given challenging IPO market conditions, it has become clear to us that taking Cainiao public now or in the foreseeable future would not be consistent with our group strategy. Nor would the achievable valuation be what we believe to be the strategic valuation of Cainiao at this point.”Alibaba Chairman Joseph Tsai said at a conference call about new developments including that involving Cainiao IPO.

Tsai said the decision to withdraw IPO applilcation and the purchase of the remaining stake were made on two considerations: first, Alibaba decided to seek deep integration of Cainiao operations and the top business segment Taobao and Tmall Group to provide the most competitive consumer experience, so Cainiao should focus on e-commerce and long-term global expansion, rather than distraction of IPO; second Alibaba believes it would be difficulty in reflecting strategic value of Cainiao under the current depressed market with poor liquidity, since Cainiao requires heavy investments to expand and accelerate the establishment of a global logistics network, and it will take long time to generate returns from such investments. “Given the strategic importance of Cainiao to Alibaba and the significant long-term opportunity we see in building out a global logistics network, we believe this is an appropriate time to double down,”. Tsai told analysts.

Tsai disclosed the offer price represented valuation of US$10.3 billion, in line with the current fair value of Cainiao that Alibaba and its consultants estimated. He added that purchase of stake aims to retain employees and it also can help minority shareholders address their concern of uncertainty.

The withdrawal of IPO plan suggested Alibaba halted all the possible separate Hong Kong IPO proceedure of any subsidiaries following its biggest restructure in its 24-year history. The Chinese internet titan announced late March 2023 that it decided to split into six business groups. Five of these major business groups have the flexibility to raise external capital and potentially to seek its own IPO, with the exception of Taobao & Tmall Group, which remains wholly-owned by Alibaba Group. Each business group is fully responsible for its performance, with financial independence.

Almost two months later, Alibaba said listing plans about the grocery unit Freshippo, or Hema, and Cainiao got the nod from its board of directors. Freshippo was approved to execute an IPO, and expected to be completed in the next 6 to 12 months. Cainiao was allowed to explore an IPO with the target to complete the deal in the next 12 to 18 months. The board also approved a full spin-off of the Cloud Intelligence Group via a stock dividend distribution to shareholders, aiming to complete the breakup in the next 12 months and make the group an independent publicly listed firm.

In a report about the financial results for the third quarter released in November, Alibaba said it decided not to proceed with a full spinoff of Cloud Intelligence Group as the recent expansion U.S. export restrictions on advanced computing chips has created uncertainties for the unit’s prospects. The Hangzhou-based company believes the spinoff may not achieve the intended effect of shareholder value enhancement, according to the report.

At an earnings call last month, Alibaba management management ruled out separate listings of Cainiao and Freshippo. “Market conditions currently are just not in a state where we believe we can really truly reflect the value in true intrinsic value of these businesses,” Tsai replied to a request for updates of potential IPOs of Freshippo and  Cainiao. He stressed the caveat upon the announcement about these units’ potential fundrasing was that all these transactions were subject to market conditions. Alibaba continues to explore value creation through separate financing of units, but “given the challenging market conditions, as I said, we’re not in a hurry on the timing of these transactions”, according to Tsai.