Alibaba, China's largest tech firm, set to restructure into six spin-offs
The split is expected to unlock massive value for shareholdersBy Kishalaya Kundu
What just happened? In a surprise move, Chinese tech giant Alibaba has announced plans to split itself into six different business groups. The company reportedly plans to offer IPOs for at least five of the six entities, although there's no ETA for when that could happen.
The split companies will focus on six tech sector areas, including cloud computing, e-commerce, and logistics. According to Nikkei Asia, the new companies will include the Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Service Group, Cainiao Smart Logistics, Global Digital Commerce Group, and Digital Media and Entertainment Group.
All six subsidiaries will work independently of one another, managed by their current chief executives and board of directors. All the firms will fall under the Alibaba Group umbrella, led by the current CEO, Daniel Zhang. Zhang will also serve as the CEO of the Cloud Intelligence Group, home of the company's cloud and AI businesses.
In a letter to employees on Tuesday, Zhang announced the impending restructuring saying that the overhaul would help the company "become more agile, enhance decision-making, and enable faster responses to market changes." The restructuring is part of its continuing move toward a "nimbler organizational structure."
The announcement comes just a day after the company's flamboyant founder, Jack Ma, returned to China after spending roughly a year abroad. Ma's foreign sojourn coincided with China's severe Covid-19 restrictions that affected the general population, small businesses, and large enterprises. It's not immediately known where Ma spent the last year.
The restructuring comes during a significant downturn in Alibaba's multi-billion dollar retail business. Consumers across China tightened their purse strings in a sluggish economy, mostly blamed on China's controversial zero-Covid policy.
Alibaba Group Holding Limited is one of the world's largest tech companies, working in many sectors, including cloud computing, the internet, artificial intelligence, and more. However, it's best known for its e-commerce business and electronic payment services. The company was founded in Hangzhou, with headquarters in the Cayman Islands.
Following the announcement, Alibaba's ADRs surged more than 14% on the NYSE and currently sit at $98.52, up from its $86.12 closing price on Monday. Analysts believe there's much more upside to the stock in the coming days, with Citigroup's Alicia Yap raising its target price to $156.