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Alibaba mega-IPO rekindles 'bromance' [ITWeb](ITWeb Via Acquire Media NewsEdge) SoftBank chief executive Masayoshi Son (left) hugs Jack Ma, founder and executive chairman of Alibaba Group. Masayoshi Son's nose for an investment has turned a $20 million start-up punt on Alibaba into a stake worth maybe $50 billion or more, as the Chinese e-commerce giant co-founded and led by Jack Ma heads to what could be the biggest US tech IPO of all time. Son, CEO of Japanese telecoms firm SoftBank, also put money into a young Yahoo, co-founded by Jerry Yang, in 1995, and Yahoo's subsequent investment in Alibaba saw Ma, Son and Yang build Alibaba into one of world's biggest Internet companies as China's e-commerce market took off. "It was the look in his eye, it was an 'animal smell'," said Son of his decision to back Ma when they first met in 2000. "It was the same when we invested in Yahoo when they were still only five to six people. I invested based on my sense of smell," he quipped in a group media interview in May. Under pressure from investors, Yang quit Yahoo in early 2012 and gave up his seat on Alibaba's board. He is now a founding partner of AME Cloud Ventures, a San Francisco venture fund. But next month, the three poster boys for Asian technology entrepreneurship, bound by a shared ambition and a taste for sushi and golf, are set to be reunited on Alibaba's board following the firm's long-awaited New York IPO. For potential IPO investors, the reunion ? Yang will be an independent director, while Son will be a director and Ma the executive chairman ? is likely to further tighten Ma's control over the company as Son and Yang tend to follow his direction, former Alibaba, SoftBank and Yahoo insiders said. SoftBank has a 34% stake in Alibaba, and Yahoo owns 23%. Son has said SoftBank doesn't plan to sell down its Alibaba stake in the IPO, while Yahoo may sell up to about 16.5% of Alibaba. Alibaba, SoftBank and a spokesman for Yang declined to make Ma, Son and Yang available for interview for this article. 'Mr Ten Times' The son of a pachinko parlour operator, Son has risen to the top of Forbes' Japan rich-list, forging SoftBank into a tech titan worth $84 billion, making it Japan's second-most valuable listed company behind Toyota. SoftBank increased its stake in Yahoo in 1996, buying into the US firm's IPO to become its primary shareholder. The stake has since been whittled down to almost nothing, but the two remain Yahoo Japan's biggest investors, each holding more than a third of the Japanese firm. Yahoo co-founder Jerry Yang. In 2000, Son met Ma, an elfin and outspoken former English teacher from China's eastern city of Hangzhou. The two, who often joke about being both short and smart, according to a person close to Son, saw each other as kindred spirits. Their shared drive helped Alibaba grow from just 18 people working out of an apartment, to a company with more than 22 000 employees and global ambitions. David Wei, a former CEO of Alibaba.com and co-founder of Vision Knight, recalled how he nicknamed Son "Mr Ten Times". "Every time I explained any business plan or model, Masa's first reaction was to say, 'David, can this be ten times bigger?'" said Wei. "In the cases I managed to answer, he would ask again, 'What about ten times more?'" 'Crazy' men When Ma first heard Son was in China sniffing out potential investments, he e-mailed him and snagged some brief 'face time'. After just five minutes of listening to Ma riffing on his vision from a scrap of paper, Son extended the meeting and ended up investing 2 billion yen (about $20 million at the time) in Ma's company. "Ma is a 'never-say-die' kind of person, but really there was only one person who understood him, and look how much money it's earned Masayoshi Son," said Shou Yuan, a former Alibaba employee acquainted with Ma and Son. "Son has a lot of self-confidence, he's even conceited, but his appearance is always one of modesty. He's crazy, but Ma's also crazy. It's very common for crazy people to like each other." When Alibaba launched its Taobao consumer-to-consumer marketplace in 2003, Son donated his wristwatch to be sold on the new site and, as the pair met more frequently, Ma developed a love for Japanese food. "Jack always loved the best Japanese food ... and the best Japanese food in Japan can always be generated by Masa," said Wei, the former Alibaba.com chief. Yang, who like Son has a Japanese wife, shares the taste for good Japanese cuisine, and is a frequent diner at a small sushi bar in Los Altos, California, a popular hang-out for Silicon Valley heavyweights including Google's Sergey Brin. Philosophical pairing Ma first met Yang in the late 1990s, when he was working for the government and acted as Yang's official guide to the Great Wall. By 2005, their friendship had developed and the idea of Yahoo investing in Alibaba came up. Yang contacted Ma at the prompting of senior Yahoo executives who were trying to figure out how best to get a foothold in the China market, said a former Yahoo executive familiar with the Alibaba transaction. "Jerry was reluctant at first because it was very difficult to do business with Chinese entrepreneurs," he said. "[Yang and Ma] spent a lot of time together; they had to get to know each other, build a relationship. Almost all were quiet, deep discussions, philosophical, full of Chinese proverbs – particularly from Jack." Ma kept Son in the loop in the months running up to Yahoo's investment and even took up golf so he could bond with Yang. "Jack committed a lot of effort to learning golf, I think because Jerry invited him, and he couldn't play," Wei said. The final decision ? with Yahoo buying a 40% stake in Alibaba for more than $1 billion ? was made at a Pebble Beach golfing retreat exclusively for Chinese professionals. "Jack really liked Jerry's personality," said a person whose firm invested in Alibaba. "Jerry really solidified that deal." Son, who can also show a domineering streak, was reluctant to reduce the size of his valuable Alibaba 'insider' stake by selling to Yahoo, but Ma eventually won him over. "The only place where there was challenge [to Ma] was about taking the initial investment from Yahoo. Son's biggest point was that he didn't want to sell anything to Yahoo," said another person whose firm invested in Alibaba. "As part of that deal insiders had to sell 40% of their stake, and Masa fought that tooth and nail." With Yahoo on the board, and its money and China operations in Alibaba's hands, the Ma, Son and Yang triumvirate envisioned an alliance between their three companies that could one day knock Google out of China, said people close to them. On the board, the three always acted in harmony in meetings with Alibaba executives, said former executive Wei. But their management styles were very different. "When Masa talks, nobody else talks," Wei said, but Yang's style was more American, more inclusive. "When other Yahoo representatives were there he'd always talk last. He'd encourage others to share their ideas, thoughts, and challenges." Existential threat However, while Yang's investment in Alibaba was lauded as one of his best decisions at Yahoo, the stake was big enough to rankle Beijing, which feared the US firm held too much sway over Alibaba, people familiar with the matter said. "Yahoo essentially became a liability – their investment in Alibaba posed an existential threat to the company," said a person involved in the partnership at the time. Yahoo China's search engine was subject to local censorship in line with the government's control of the Chinese Internet, and Yahoo's reputation back home was dented when the China business handed over a local dissident's e-mails to Beijing, resulting in his imprisonment. Ma and Yang, however, remained close even after Ma split Alipay, an online payment subsidiary, from Alibaba in 2011 without the board's approval, said people who know the two men. Yang was reluctant to challenge Ma over the move, sitting on his hands rather than addressing the issue, the people said. More recently, Yang has been instrumental in helping Alibaba get a foothold in Silicon Valley as the Chinese group increases its overseas investments. He introduced Alibaba to Tango, a mobile messaging app-maker in which he was already invested. Alibaba later paid $215 million for a minority stake. Son, too, has supported Ma ? who sits on SoftBank's board ? particularly when Alibaba last year traded blows with the Hong Kong Stock Exchange over a controversial proposed listing structure. "Son's involvement and advice regarding Alibaba's business have been huge," said a SoftBank executive who didn't want to be named because of the personal nature of his comments. Having his two key allies back on Alibaba's board will further cement Ma's grip on the company even as the IPO opens up Alibaba for outside investors. "[Ma] doesn't have much patience for people who get in the way of the ideals he's pursuing," said the person involved in the Yahoo-Alibaba partnership. Revenue soars Meanwhile, Alibaba's revenue accelerated in the second quarter on strong gains in its mobile business, providing investors with what may be the final glimpse of the Chinese e-commerce company's financials before its expected landmark market debut. Alibaba, whose IPO could be the largest ever by a technology company, said mobile revenue was roughly a third of its total transaction volume in the three months ended 30 June, up from 27.4% in the first three months of the year. Revenue in the second quarter increased 46% year-on-year to $2.54 billion, a faster pace than the 38.7% revenue growth that Alibaba posted in the first quarter. Net income attributable to Alibaba's ordinary shareholders nearly tripled to $1.99 billion, or 84 cents per share, in the quarter. "The main positive I take away is that [it] seems the mobile monetisation is on a very strong upwards trajectory," Atlantic Equities analyst James Cordwell told Reuters. "The results are very positive overall for the forthcoming IPO and I think you can see valuations to head north of $200 billion as we go through the IPO process," Cordwell said. Alibaba accounts for about 80% of all online retail sales in China, where rising Internet usage and an expanding middle-class helped the company generate gross merchandise volume of $296 billion in the 12 months ended 30 June. With people increasingly accessing the Internet from smartphones and tablets, online companies ranging from social networks such as Facebook to e-commerce companies like Amazon.com have been investing heavily to develop their mobile platforms. "Our current focus is on increasing mobile (gross merchandise volume) and user engagement," Alibaba said in a US regulatory filing yesterday. Alibaba, expected by some to price its IPO as early as next week, will have a roadshow next month that is likely to attract interest from a wide range of funds, including those focused on emerging markets and technology. Alibaba may garner a valuation of $200 billion or more when it goes public, analysts say, which would make it one of the 20 biggest companies listed in US markets and more valuable than Amazon.com or eBay. Though Alibaba's growth has slowed sharply over the past two years as the Chinese leviathan accumulates scale, its revenue growth still outpaces Amazon's. The US online retailer reported a 23% jump in third-quarter revenue to $19.34 billion, just about half of Alibaba's pace of expansion. Some fund managers advocate selling out of Amazon, and buying into Alibaba as a play on Chinese consumer spending growth instead. "We've been waiting for this deal for so long that when it finally arrives people will have been analysing it for a year. They're ready to buy," said Paul Meeks, senior analyst and portfolio manager of the Sextant Growth Fund at Saturna Capital in Bellingham, Washington. "With an IPO that is this marquee, this large and this hot, unless bankers price it at a crazy high level I'm not sure there's any worry about people having to clear things out," he said earlier this month. Alibaba had 279 million active buyers at the end of June, up 50% from a year earlier. The company said the average active buyer placed 52 orders in the year ended June, up from 45 in the previous year. Alibaba said on Wednesday it had incurred "substantial indebtedness", after fully drawing down an $8 billion credit facility. The company has arranged another credit line of $3 billion. Even as Alibaba prepares for its IPO, it has continued to invest more than $5 billion in acquisitions since the beginning of the year, including Web browser maker UCWeb and mobile mapping service AutoNavi. The number of subsidiaries and consolidated entities has jumped to 279 from 202 from March to June, according to the updated prospectus. (c) 2014 ITWeb Limited. All rights reserved. Provided by SyndiGate Media Inc. (Syndigate.info). [ Back To TMCnet.com's Homepage ] |