HONG KONG, April 13 (Reuters Breakingviews) - Losing a stalwart backer is usually painful for a company. But in Alibaba's (9988.HK) case, the departure of Masayoshi Son may be beneficial. His investment empire SoftBank Group (9984.T) is slashing its stake in the Chinese e-commerce firm to 3.8%, according to the Financial Times, a symbolic end to a 23-year investment. Now, Alibaba boss Daniel Zhang can focus on pitching his remaining shareholders on his radical breakup plan.
The Japanese group, reeling from rising global interest rates and a worldwide tech selloff, told the FT it is in "defensive mode.” That means selling assets including its Alibaba stake, which the Japanese conglomerate bought more than two decades ago for $20 million. Last year, it booked a 3.7 trillion yen ($28 billion) gain from whittling that position down to just under 15%, from 23.7%; it has already sold a further $7.3 billion this year via prepaid forward contracts, per regulatory filings analysed by the FT.
Strategically not much changes for Alibaba. Its relationship with its erstwhile largest shareholder was largely driven by Son and founder Jack Ma's personal ties. Both men had stepped down from each other's boards back in 2020, shortly after Ma's retirement from Alibaba. Apart from a few joint investments, the two companies have operated independently. If anything, the stock overhang created by SoftBank’s plans to monetise its stake was a distraction.
With that out of the way, Zhang is cleared to focus on Alibaba's massive corporate overhaul unveiled last month. The company is splitting into six units. Some will probably be listed, others sold outright. Current shareholders will be left with a holding company led by Zhang, plus Alibaba's cash-cow Chinese commerce business.
Not all are convinced the reboot will unlock value. After soaring 20% in the three days following the breakup announcement, the rally has cooled; Alibaba's New York stock fell 10% since then before the SoftBank news.
Boosting shareholder returns might win over sceptics. After all, Alibaba's U.S. shares are down over 60% in the past two years, while the S&P 500 has stayed largely flat. Gains from future spinoffs of its cloud computing and logistics businesses could be ploughed into dividends or buybacks, as would monetising its huge investment portfolio, which includes valuable stakes in listed companies like the Twitter-like Weibo (9898.HK), which is currently worth over $1 billion. Rivals Tencent (0700.HK) and JD.com (9618.HK) have already adopted similar approaches. Returning some of Alibaba’s roughly $50 billion in net cash will help too.
The SoftBank relationship may have been good for a while, but all good things come to an end. It should leave Alibaba investors with plenty to look forward to.
Follow @mak_robyn on Twitter
CONTEXT NEWS
SoftBank Group has sold $7.2 billion worth of Alibaba shares in 2023 via prepaid forward contracts, the Financial Times reported on April 13 citing regulatory filings, as part of a move to sell almost all of its remaining shares in the Chinese company.
The sales will eventually reduce SoftBank's stake in Alibaba to 3.8%.
SoftBank told the FT the Alibaba transactions reflected its shift to "a defensive mode" to address a more uncertain business environment, and added the company would provide details of the deal in its quarterly results announcement in May.
In 2022, SoftBank booked a gain of $34 billion by cutting its stake in Alibaba to 14.6% from 23.7%.
Alibaba's Hong Kong shares were down 3.9% to HK$92.25 during early morning trading on April 13. SoftBank's Tokyo shares were largely flat on the same day.
