Alibaba Group wants to split into six units and investigate fundraising or listing opportunities for the majority of them, the company announced on Tuesday, in a dramatic restructuring as Beijing pledges to soften a broad regulatory crackdown and assist its private enterprises.
Following the news, Alibaba’s US-listed shares soared as much as 8%. Since the regulatory crackdown began in late 2020, Alibaba’s stock has dropped by around 70%.
The Chinese e-commerce conglomerate said it would split into six units in the largest restructuring in its 24-year history: Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics Group, Global Digital Commerce Group, and Digital Media and Entertainment Group.
The makeover of the company comes a day after Jack Ma returns to China
The makeover of the company comes a day after its founder, Jack Ma, returned home after a year overseas, and as Beijing seeks to stimulate private sector growth following a two-year regulatory crackdown on its flagship private firms.
“The original intention and fundamental purpose of this reform are to make our organization more agile, shorten decision-making links, and respond faster,” Zhang said in a letter to staff seen by Reuters.
Each business group, he said, needed to actively address the market’s rapid changes, and each Alibaba employee needed to “return to the mindset of an entrepreneur.”
Daniel Zhang will continue to serve as chairman and CEO of Alibaba Group, which will be managed in a holding company model, as well as CEO of Cloud Intelligence Group. Each of the six business groups will be overseen by its own CEO and board of directors and will be able to raise outside cash and seek an initial public offering, according to the company.
Taobao Tmall Commerce Group, which handles its China commerce business, will remain an Alibaba Group wholly owned subsidiary. Zhang also stated that the corporation would “lighten and trim” its middle and back office activities, although no specific job layoffs were announced. Investors believe the statement addresses fears that Alibaba has lost growth potential and indications that regulatory issues had been alleviated.
“That adds value,” said Kenny Ng, a strategist at China Everbright Securities in Hong Kong.
“With this expectation, investors will be more positive about Alibaba. “It may reflect a new round of development for the business and reduce worries of regulatory issues.”
The Return Of Ma
The reform is one of the most significant corporate adjustments made by a large Chinese IT company in recent years, as the industry has cowered under stricter governmental oversight, forcing transactions to dry up and organizations’ appetite to explore new areas to dwindle.
Authorities have been softer on the private sector in recent months as authorities sought to prop up an economy devastated by three years of COVID-19 restraints. Businesses, on the other hand, have been reticent, citing a lack of new supportive policies and the new regulatory structure as reasons.
Alibaba’s stock rose on Monday after the company’s founder, Jack Ma, was photographed returning to China, after a more than a year-long absence that the industry saw as reflecting the gloomy attitude of its private enterprises.
China’s new premier, Li Qiang, who has been at the forefront of the government’s effort to boost the private sector, recognized Ma’s return to the mainland could help boost business confidence among entrepreneurs and had begun asking Ma to return since late last year, according to five sources with knowledge of the matter.
“It does seem something of a coincidence that this is happening just as Ma seems comfortable returning. To me it suggests something that Alibaba has been wanting to do for some time, but has been waiting for the opportunity to do so,” said Stuart Cole, a head macroeconomist at brokerage Equity Capital.
The restructuring “does inject an element of flexibility and adaptability into the company, which currently is something of a behemoth,” he added.