Alibaba CEO sees group evolving as ‘asset and capital operator’ after the US$257 billion tech empire is split into 6 independent entities

Alibaba’s Daniel Zhang said the group will initially retain control over the boards of the new companies created under its restructuring plan
He expected stability to be ‘driven by the strong value that can be created through synergies’ between the new firms

Alibaba

Lilian Zhang

Published: 9:00pm, 30 Mar 2023

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The historic overhaul of Alibaba Group Holding will transform the Chinese technology conglomerate into “an asset and capital operator, [rather] than a business operator”, company chairman and chief executive Daniel Zhang Yong said on Thursday.

In a 24-minute conference call with analysts, Zhang reiterated that Alibaba’s sweeping restructuring plan, which will transform the US$257 billion tech empire into six independently run entities, will make operations “more agile, enhance decision making and enable faster responses to market changes”.

He also asserted that this change is necessary for Alibaba, owner of the South China Morning Post, to move forward even though the reorganisation had triggered speculation about the fate of the group’s more than 200,000 employees.

“Stability does not rest on an administrative directive issued by the group level, rather, it relies on and is driven by the strong value that can be created through synergies,” Zhang said. He expected the new organisational structure to serve as a test on the ability of the different businesses to work together and create value for each other.

Hangzhou-based Alibaba Group Holding will reorganise into six independently run entities. Photo: Shutterstock

The Alibaba chief executive’s latest statements on the overhaul reflect his strong confidence in the group’s new direction, which represents its biggest transformation since Jack Ma and 17 other co-founders started the business out of his small flat in Hangzhou, capital of eastern Zhejiang province, in June 1999.

The move to restructure comes about 10 days after China’s new cabinet, the State Council, pledged to focus on boosting support for the private sector and stabilising foreign investment amid persistent market speculation over the country’s growth prospects owing to external uncertainties, falling overseas orders and weak consumption.

Alibaba’s break-up plan has been a welcome development for investors, who were richly rewarded when the stock recorded a US$32 billion overnight gain in market value in New York and HK$21 billion (US$2.7 billion) in Hong Kong after the announcement was made.

The company’s shares in Hong Kong closed up 2.49 per cent to HK$96.90 on Thursday.

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Zhang told analysts on Thursday that Alibaba would serve as the holding vehicle and initially retain control over the boards of the new companies. These include Cloud Intelligence Group, e-commerce under Taobao-Tmall, Cainiao’s smart logistics operations, Local Services Group, Global Digital Business Group, and the Digital Media and Entertainment Group.

Each of those companies will have its own board of directors and governance structure, and can pursue financing from third parties or an initial public offering when they are ready, he said.

Toby Xu, the group’s chief financial officer since April last year, said at the same conference call that after those companies go public, senior leadership will evaluate their strategic importance for Alibaba.

“On that basis, we will decide whether to continue to retain control,” Xu said, adding that “there will be even more ways that we can enhance value for shareholders”.

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Alibaba’s restructuring might pave the way for its most politically sensitive businesses, such as cloud computing, to either list onshore or in Hong Kong, or even go private, according to Thomas Gatley, an analyst at research firm Gavekal, wrote in a report.

“Its less sensitive business lines could remain on US markets,” Gatley said.

Credit-rating agency Moody’s Investors Service said in a research note on Wednesday that Alibaba’s reorganisation was “credit positive”.

Over the short-term, Alibaba will be able to make decisions and respond to competitive pressure “more quickly and nimbly”, and each business unit will have stronger incentives to drive “better performance and efficiency”, Moody’s said.

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“In addition, the restructuring could reduce regulatory risks and ease scrutiny after the Chinese government crackdown on technology companies during the past few years,” Moody’s said.

Alibaba, meanwhile, will immediately commence its strategy and business planning for the six business groups under its reorganisation plan, according to Zhang. The group’s corporate overhaul was announced just days before the start of its new financial year on April 1.

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