Alibaba takes bold steps on overhaul

Latest restructuring moves by e-commerce giant are just the first steps to revamp the company as it prepares for a listing

PUBLISHED : Thursday, 17 January, 2013, 12:00am
UPDATED : Thursday, 17 January, 2013, 4:19am

Mainland e-commerce giant Alibaba's restructuring moves in the past days are only the first steps towards an overhaul of the company in preparation for the group's listing, say analysts.

According to two people familiar with the situation, Alibaba is likely to name Credit Suisse and Goldman Sachs as bookrunners to handle its listing in Hong Kong and overseas, which could happen this year.

One of them said Goldman handled the firm's Hong Kong 2007 listing and Credit Suisse provided financing for its US$2.5 billion privatisation last year.

The size of the offering remained unknown because the firm had not indicated what assets would be put in the listed unit, but one of the people estimated it at US$4 billion.

An Alibaba spokesman denied the firm had hired any banks for a listing, Reuters reported.

On Tuesday, founder Jack Ma Yun said he would step down as chief executive but remain as chairman. The news came after he announced the company would split itself into 25 business groups from the seven units at present to improve efficiency.

In an internal mail to employees, Ma called the restructuring "the most difficult reorganisation" in Alibaba's history since it was established in 1999. "It's a culture shift."

Xie Wen, an IT expert and former president of Yahoo China, which is part of Alibaba, said the new structure was a huge challenge. "Communication and co-ordination must be complicated between 25 units," he said.

Under the new system, each unit will be led by a general manager, whose names are yet to be revealed.

The top-tier management team remains intact, according to Alibaba. "This is about how we organise the level below the level that reports to the CEO," said a spokeswoman.

Nine executives will oversee the 25 units, up from the seven people who have had similar responsibilities since July.

While the units will have to work coherently, they also need to be given space for their own growth. "I haven't heard of such a corporate structure anywhere in the world," Xie said.

The last restructuring was carried out just six months ago, when the company turned its six subsidiaries into seven core business groups. These include business-to-business trading portal consumer-to-consumer online shopping subsidiary Taobao Marketplace, business-to-consumer retail platform and shopping search engine provider eTao.

Earlier in June 2011, it divided its online retail services unit Taobao into three wholly owned subsidiaries, each focused on specific e-commerce market segments.

Alibaba spokesman John Spelich said the latest restructuring is "a more sweeping version of when we split the Taobao companies into three".

Xie said the changes were preparations for Alibaba's listing as a single consolidated company. "There will be more reorganisation in the company and I think the units will be united gradually. Perhaps in the end, there will at most be five to seven of them," he said.

Qiu Lin, an internet stock analyst at Guosen Securities in Hong Kong, said there was a big chance that "we may see another restructuring or optimisation before long". He believes the aim of the restructuring is to tone up the middle-level management and prepare for the listing of the whole group. "For those at the top and the bottom, things do not change that much."

But he warned the outcome of the restructuring was not necessarily good as 25 business lines were difficult to co-ordinate and manage. "The efficiency of the Ali Group may get worse."

Analysts believe that by shaking off the daily duties of the chief executive, Ma will have more time to focus on strategic issues such as an IPO or other structural reforms.

"He might attend fewer meetings but will remain the decision-maker on big issues," Qiu said.

Additional reporting by Ray Chan