PE firms offer Alibaba staff a liquidity event
The timing of Silver Lake's investment in Alibaba Group, alongside parties including DST Global, Yunfeng Capital, Temasek Holdings, was curious. Days earlier Silver Lake reportedly contacted Yahoo as one of several private equity firms considering a bid for the US internet company. Yahoo’s future is uncertain following the sacking of CEO Carol Bartz, and its Asian assets – a 40% stake in Alibaba and a 35% holding in Yahoo Japan – are either a sticking point or a catalyst for potential buyers. Could the two situations be linked? Apparently not.
"There is no connection because the talks with Silver Lake pre-date the departure of Yahoo's CEO," says a Hong Kong-based lawyer who worked on the transaction. "The only purpose is for employee shareholders in Alibaba Group to get an opportunity to exit."
In this context, the deal is still unusual. It is certainly China's largest ever employee liquidity event and perhaps the largest seen in Asia as well. The transaction will be structured as a tender offer to employee shareholders and option holders as well as certain other shareholders, which will close within 4-6 weeks. The deal is estimated to be worth up to $1.6 billion and values Alibaba Group at around $32 billion. Silver Lake is investing $300 million and Temasek, already an investor in the company, is putting in $300-400 million. Yunfeng Capital is a PE firm set up by Alibaba founder Jack Ma.
Four years have gone by since Alibaba Group last had the opportunity to realize the value of its holdings through the Hong Kong IPO of Alibaba.com, the technology company's business-to-business trading platform. A listing of the entire group - which includes online shopping websites Taobao Marketplace and Taobao Mall as well as Alibaba.com - does not appear imminent.
The tender structure is complex with investors scattered across several countries and regions, including China, Hong Kong and the US. Unless Alibaba Group repeats the effort, a similar liquidity event might be a long time in coming. Most Chinese tech firms of long-term standing - which gives time for shares to spread through the employee base - are already publicly traded.
From Yahoo's perspective, the deal is instructive in that it places a value on its 40% stake - $13 billion. The internet company invested in Alibaba Group in 2005 alongside Softbank, putting up $1 billion and Yahoo's China-based assets in return for equity. Relations between the two firms have since soured, notably over Ma's decision last year to spin out third-party payment provider Alipay into a separate company under his control.
Alibaba is keen to buy back Yahoo's shares and would likely have little problem getting private equity support for any such deal. Tax and regulatory concerns would undoubtedly impact any divestment of Yahoo's Asian business but if Alibaba is a prospective buyer, it now knows the price.
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