finance case 2
Post on 25-Dec-2015
227 Views
Preview:
DESCRIPTION
TRANSCRIPT
ExtraOrdinary General Meeting
2
1.BACKGROUND
2.GOVERNANCE STRUCTURE
3.TIMING
4.PRICING METHODOLOGY
5.RECOMMENDATIONS
6.CONCLUSION
SCOPE
ExtraOrdinary General Meeting
3
BACKGROUND
Taobao.com(C2C)
Tmall.com(B2C)
Gross Merchandise Volume: $164 billion
(80% of China E-commerce Industry)
ExtraOrdinary General Meeting
4
Online Payment System
Mobile Internet Services
Partnership with Internet Industry
Acquisitions in US Markets
Total Debt : $11.7 billionTotal Asset: $17.2 billion
Total Liabilities
Expected Benefits:
Total revenue: $8.6 billionNet Income: $3.5 billion
Expansions & Acquisitions
ExtraOrdinary General Meeting
5
• Estimates by Analysts:• 612 millions of Chinese Internet users in
2014• 25% of China’s retail market will be occupied
by online retailers by 2028
• Major Domestic Competitors:• Tencent: A market capitalization of $149
billion
• Baidu: 80% of China’s search market
Market & Competitors
ExtraOrdinary General Meeting
6
Hong Kong (HKEx):
Pros:o Being the home market for Mainland Chinao Having the title of raising the largest IPO in the world since 2010o Current listing technology firms constitute about 7% of all the firmso Daily Trade Volume $64 Million
Cons:o Dwindling demands of investors due to weaker market sentimento Stringent restriction and regulations for listingo Catered to Retail Investors
The Stock Exchange
ExtraOrdinary General Meeting
7
US market: Highest market capitalization of listed firms, with strong bullish sentiment amongst investors
NYSE NASDAQ
Average Daily Trade Volume $58 million $33 million
Technology Firm Proportion 5.54% 16.34%
Positive Policies for Attracting Technology Firms
Not Requiring two years of profitability for any
company listed
NASDAQ Private Market: a platform for private
companies to trade on
The Stock Exchange
ExtraOrdinary General Meeting
8
What is the partnership structure?
One share, one vote. Right to nominate majority of the Board, subject to approval of shareholders.
Right to appoint an interim Board, not subject to approval of shareholders.
GOVERNANCE STRUCTURE
ExtraOrdinary General Meeting
9
“This structure is our solution for preserving the culture shaped by our founders while at the same time accounting for the fact that founders will
inevitably retire from the company.”
Culture
ExtraOrdinary General Meeting
11
Discounting of shares due to a dual class structure tends to “disappear in bull markets or when investors perceive they have an opportunity to co-invest
alongside a business or tech luminary”
Deloitte
Valuation
ExtraOrdinary General Meeting
12
Agency Costs of Equity
Agency Problems
Agency Costs Litigation Costs Insurance Costs
ExtraOrdinary General Meeting
13
“An IPO is significant in the life cycle of a company,
but when is the right time?”
TIMING
ExtraOrdinary General Meeting
14
Future acquisitions of firms that provide synergies Increasing Liabilities Opportune for restructuring Prevents debt eroding value
Expansion Opportunities
ExtraOrdinary General Meeting
15
Investment ClimateInvestors’ appetite to risk correlates to investment climate
Post Subprime Recession Improved Market Indices Overly optimistic Investors
DJI NASDAQ S&P 500 HSI
ExtraOrdinary General Meeting
16
Financial StabilityStrong financial stability is associated with increased demand and valuation
Asset Size of $17,222 Million Expected Revenue in 2014 of $8.6 Billion Matured operations (15 years) As of December 31, 2013
(in millions)
Cash and cash equivalent 7,876 Current bank borrowings 193
Investment securities 2,463 Secured borrowings 1,429
Property and equipment
(net)
961 Redeemable preference
shares
-
Goodwill and intangible
assets
2,131 Non-current bank borrowings 4,862
Total liabilities 11,712
Convertible preference shares 1,647
Others 20
Total mezzanine equity 1,667
Total equity 3,843
Total assets 17,222 Total liabilities and equity 17,222
ExtraOrdinary General Meeting
17
PRICING METHODOLOGYMultiples of EBITDA
Estimation of Investors’ market valuation using EBITDA approximating cash flow
Benefits Readily available comparisons with industry competitors Determine the pricing differences between the two exchange Approximates cash flow relevant to investors Ignores forecast estimation based on assumptions
ExtraOrdinary General Meeting
18
Market Capitalization AnalysisHong Kong Exchange New York Exchange
Competitors Enterprise Value/EBITDA(ttm) Competitors Enterprise Value/EBITDA(ttm)
Tencent Holdings (China) 34.59 Amazon (US) 35.9
HC International (China) 30.07 EBay (US) 13.18
Kingsoft Corporation (China) 25.93 SINA (China) 16.73
China Binary Sale Technology Ltd
(China)
16.48 Baidu (China) 28.84
Industry Average 26.76 Industry Average 23.66
Alibaba Enterprise Value 102,685 million
Alibaba Enterprise Value 90,769 million
Alibaba Market Capitalization 98,849 million
Alibaba Market Capitalization 86,933 million
Capitalization was derived by taking Enterprise Value + Cash and Equivalent - Debts
ExtraOrdinary General Meeting
19
Alibaba’s NeedsAssumptions
Outstanding shareholders volume = 2.296 billion Intention to raise 20 billion
Estimated to raise 450 million to 500 million shares
$43 and $37.86 per share in Hong Kong Exchange and US Exchange
ExtraOrdinary General Meeting
20
Listing RequirementsNYSE HKEx NASDAQ
Market Capitalization
- HK$ 200 Million – HK$ 4 Billion
US$ 75 Million
Market Value of Public Share
US$ 60 Million HK$ 50 Million US$ 20 Million
Fulfils Listing Requirements No restrictions choosing between the 3 exchanges
ExtraOrdinary General Meeting
22
• Alibaba should uphold their belief of having a partnership structure• Partnership Structure Benefits > Cost• Maintains Culture• Increases Valuation• Minimized Agency Cost
• Alibaba should be listed within this month to take advantage of current bullish climate• Uncertainty to when bullish trend will end• Uncertainty to when US will increase interest rates
Recommendations
ExtraOrdinary General Meeting
23
• Optimal price per share in US is recommended to be higher than $45.43• Base Price per share was estimated at $37.86• Price did not account for value creation• Governance Structure• Larger Investor Exposure• Prolong Optimism in Market
• Optimistic Adjustment to pricing when needed
Recommendations
-50%
-45%
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5% 0% 5% 10%
15%
20%
25%
30%
35%
40%
45%
50%
0
10
20
30
40
50
60
0%, Base
Price against % Change Due to Other Variables
Price
ExtraOrdinary General Meeting
24
• NYSE as the favoured choice• Strict Corporate Governance guideline (lacking in Nasdaq)• Strong Legal Environment in US (lacking in HK)• Better Visibility among investors
Recommendations
ExtraOrdinary General Meeting
25
• Alibaba to follow through IPO now
• Alibaba to list on NYSE
• Alibaba to list with a minimum price of $45.43
CONCLUSION
top related