Alibaba Case Questions
11-3. Do you agree with the decision to list an IPO, or should Alibaba have borrowed more money, possibly floating a Eurobond in London or elsewhere?
On September 19, 2014 Alibaba Group Holding Limited announced its intention to IPO on the New York Stock Exchange (Open Sesame, n.d.). Alibaba is a Chinese e-commerce company that facilitates business-to-business, business-to-consumer and consumer-to-consumer sales through its website. It is the worlds largest online and mobile commerce company in terms of gross merchandise volume. An IPO listing would allow Alibaba to raise capital to invest in growth initiatives and acquire other companies. It would also provide liquidity for early investors and employees who hold stock options.
However, there were also some disadvantages associated with an IPO listing. For example, it would subject Alibaba to increased regulation and public scrutiny. In addition, an IPO listing would dilute the ownership stakes of current shareholders. Overall, an IPO listing would provide both advantages and disadvantages for Alibaba, so there was a lot to consider. Perhaps Alibaba should have considered raising more funds through debt?
There are pros and cons to both an IPO and a Eurobond. With an IPO, a company can raise a lot of money quickly and gain access to public markets. However, it can be expensive and time-consuming, and there is the risk of over-hyping the stock and then seeing a drop in price after the IPO.
A Eurobond is slower and more expensive, but it can be a good way to raise money from long-term investors. There is also the benefit of being able to list the bond on a stock exchange.
In the end, it is up to the company to decide which option is best for them. Alibabas decision to go public was a good one, and they have been successful so far. However, there are always risks with any decision, and time will tell if it was the right choice in the long run.
11-5. What is...
…it is not always the best course of action. As such, each case must be considered on its own merits in order to determine whether or not diluting ownership makes sense.For Alibaba, dilution was a way to raise funds quicklybut not every company can be expected to follow in that model as successfully. Some will not be able to scale the way Alibaba has. A company that is able to scale effectively is one that is able to grow at a faster rate than its competitors (Cumming et al., 2018). For such a company, diluting ownership allows the company to raise capital more easily. Second, it gives the company the flexibility to invest in new opportunities as they arise. Third, diluting ownership allows the company to attract and retain top talent. Finally, diluting ownership provides the company with a greater degree of control over its own destiny. In contrast, a company that cannot scale effectively is one that is hindered by its own size and structure. This type of…
References
Cumming, D., Johan, S., & Zhang, Y. (2018). Public policy towards entrepreneurial finance: spillovers and the scale-up gap. Oxford Review of Economic Policy, 34(4), 652-675.
Kim, W. (2012). Investor protection and the mode of acquisition: Implications for ownership dilution and formation of pyramids. Financial Management, 41(1), 55-93.
Open Sesame: Alibaba Isn’t Poor Anymore. (n.d.). Chapter 11: Global Capital Markets, 282-285.
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