MELBOURNE, March 30 (Reuters Breakingviews) - When investment bankers look back on 2023, they may cite March as the turning point. Until then, their business was in a slump. In Asia and the United States alike, fees from advising on mergers and selling new stocks and bonds fell some 40% in the first three months compared to the same period a year earlier, per Dealogic. M&A kingpins attending an industry confab in New Orleans joked about having nothing else to do. Then New York- and Hong Kong-listed Alibaba (9988.HK) revealed it was creating six independently run businesses.
That will keep dealmaking teams busy for months if, as CEO Daniel Zhang envisions, multiple listed companies emerge from the $250 billion parent. And if a breakup is good for Alibaba, they can dust off pitchbooks for its domestic rivals. Shares in Tencent (0700.HK), for example, jumped 8% on Alibaba’s news, while JD.com (9618.HK), Baidu (9888.HK) and Meituan (3690.HK) rose close to 5%.
Convincing companies a discount is down to a conglomerate structure obscuring value is what dealmakers live for. China’s e-commerce firms currently trade at an average 15 times earnings, around half the multiple they sported in March 2021. Media companies, meanwhile, trade at 22 times earnings, the widest premium they have enjoyed in more than two years, according to Bank of America research.
And why limit the discussion to Chinese firms which have come under regulatory scrutiny for their market heft? Southeast Asian tech groups, including New York-listed e-commerce-to-games giant Sea (SE.N), at least partly modelled themselves on Alibaba and its peers. In Japan, SoftBank (9984.T), whose billionaire founder Masayoshi Son invested in Alibaba in 2000, trades at a 45% discount to its end-2022 net asset value.
Bolder bankers may want to spread the net wider, perhaps to lobby BYD (002594.SZ), (1211.HK) to spin out its electric-vehicle and semiconductor businesses. General Motors (GM.N) has previously mentioned its autonomous-vehicle unit, GM Cruise, is one to potentially hive off. And there are still plenty more traditional conglomerates, not least in Asia – like Li Ka-shing’s $24 billion CK Hutchison (0001.HK). No harm in giving them a call too if Beijing has decided big is not better in its private sector.
For those who do drum up business, it’ll quickly become a question of size, location and form. Different types of listing come with different fees: Alibaba paid banks just 0.25% of the $12.9 billion raised for its 2019 Hong Kong debut, after distributing 1.2% in New York five years earlier. Smaller deals on U.S. exchanges can still command paydays of 4% or more. Considering where dealmakers are now, though, that’s a luxury problem.
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CONTEXT NEWS
Alibaba CEO Daniel Zhang said on March 29 that he hopes multiple listed companies will emerge from the group. He made the comments in a video interview with Chinese media.
“I hope there will be multiple listed companies emerging from the Alibaba system, and that they will continue to nurture their own sons and daughters, and cultivate more listed companies”, Zhang said, according to the South China Morning Post.
On March 28, the company said it plans to split into six independently run entities, enabling most of them to pursue fundraisings or listings. The units will be: core shopping division Taobao Tmall Commerce; Cloud Intelligence, which offers IT services; delivery arm Local Services; Cainiao Smart Logistics, which offers virtual mapping; and Alibaba’s global retail and entertainment divisions.
