AVCJ China Awards: PE deal of the year – Alibaba Group
AFTER THREE YEARS OF ON-AND-OFF negotiations with Yahoo, Alibaba Group finally agreed to repurchase half of the US internet firm’s 40% stake in itself for $7.6 billion last September. Supported by $5.9 billion in financing, of which $3.9 billion was equity, it was one of the largest – and most sought-after – transactions involving a Chinese company to date.
"The size of that investment round presented an excellent opportunity for us to make a major investment," says Ken Hao, managing partner and managing director of Silver Lake.
In 2011, Silver Lake and DST Global co-led a $1.6 billion equity investment for purchasing 5.7% employee stake in Alibaba. The two firms, plus co-investors including Temasek Holdings, raised their holdings in the buyback transaction. China Investment Corp. (CIC) led the PE portion of the deal, with Boyu Capital, CITIC Capital and CDB Capital - China Development Bank's PE arm - coming in as new investors. CIC is said to have put in $2 billion on its own.
"Alibaba has established a close cooperative relationship with CDB," Mao Yong, executive director & CIO at CDB International tells AVCJ. "We were keen to invest in the company due to its leading position in the global market, strong team and prospect for future development."
The timing of the deal was uncertain due to a combination of past tensions between the companies, the size of Yahoo's stake in Alibaba as a proportion of its own market capitalization and tax considerations in structuring the deal. This meant that CIC was ready to move much earlier than required.
The $2 billion in senior debt portion of the deal was split between China Development Bank and a consortium of international banks, including ANZ, Barclays, Citi, Credit Suisse, DBS, Deutsche Bank, Mizuho and Morgan Stanley. Once again, structuring and timing were the main challenges - Alibaba set out to finance the $2.5 billion privatization of B2B arm Alibaba.com in parallel with the buyback but it was unclear which would come first.
"We were dealing with a large number of highly sophisticated and experienced investors and the biggest challenge was logistical - making sure everyone was moving the same direction and getting where we needed them to be," says Ken Martin, head of China Practice at Freshfields, legal advisor to Alibaba.
Yahoo has done well from its investment, having acquired the full 40% stake in 2005 for $1 billion plus the Yahoo China business. The US firm received $6.3 billion in cash, $800 million in preference shares, and $550 million in patents and licensing payments. Its remaining 20% stake is worth $8.1 billion and Alibaba has a two-year window in which to purchase it, in case of an IPO.
The listing would be Alibaba's pay off on its efforts, with some industry participants expecting the offering to value the company at up to $100 billion. Nothing is likely to happen before the final quarter of 2013.
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