Alibaba partners tighten grip in revised filing before IPO

Concerns raised as partners revise filing, allowing mainland group to appoint more directors without shareholder approval

PUBLISHED : Monday, 14 July, 2014, 3:09am
UPDATED : Monday, 14 July, 2014, 3:09am

The partnership that governs Alibaba has strengthened its grip over the mainland e-commerce giant as it prepares for its US initial public offering.

The group - currently made up of 27 executives - was entitled "without the need for any additional shareholder approval" to appoint more directors, according to an amended US regulatory filing on Friday. It would do so if less than a simple majority of board members were partnership nominees.

Alibaba, which is preparing for what may be the largest listing in the United States, had already said the partnership had the exclusive right to nominate a majority of the board, with ordinary shareholders to vote on those nominees.

The partnership intends to designate four of the nine original directors, and could appoint two additional members, bringing the total board number to 11.

"This ability to expand board seats is just another mechanism to give the partnership control and keep control of Alibaba," said Eric Jackson, president of hedge-fund Ironfire Capital.

"It doesn't surprise me because the whole reason they're doing the IPO in New York is because they felt that the partnership was a key component of their competitive advantage."

Alibaba's partnership structure kept it from conducting the offer in Hong Kong. The arrangement is permitted in the US, where companies more commonly create different classes of shares to keep insiders in charge. The Hangzhou-based company's structure has raised corporate governance concerns because it enables founder Jack Ma Yun and his management team to keep control.

Alibaba investors would be accepting limited oversight of management just as Ma embarks on a deal spree that is pushing the company into new areas from online mapping to television content. The acquisitions include a 1.2 billion yuan (HK$1.49 billion) stake in Guangzhou Evergrande Football Club, the most popular soccer team on the mainland.

The revision to Alibaba's filing comes during a period in which the US Securities and Ex- change Commission is privately submitting questions to the company.

The company could conduct the offering as soon as early next month, sources have said. Estimates of its valuation suggest it could raise more than US$20 billion.

Alibaba also revised the text about its relationship with the PayPal-like unit Alipay. The new filing extracts Alibaba's description of Alipay as a "related company" and makes it clearer that there is a contractual arrangement between the two.

The update also adds a section that explains how the People's Bank of China required a divestment of the unit in 2011.