Alibaba Group is planning to split into six units and explore fundraisings or listings for most of them, it said on Tuesday, in a major revamp as China vows to ease a sweeping regulatory crackdown and support its private enterprises.
The U.S.-listed shares of the Chinese e-commerce conglomerate, which have lost nearly 70% of their value since the curbs were imposed in late 2020, rose more than 14%.
Alibaba said the biggest restructuring in its 24-year history would see it split into six units — Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics Group, Global Digital Commerce Group and Digital Media and Entertainment Group.
The revamp comes a day after Alibaba founder Jack Ma returned home from a yearlong stay abroad, a move that dovetailed with Beijing's effort to spur growth in the private sector after a two-year crackdown.
Analysts said the breakup could ease scrutiny over the tech giant whose sprawling business has been a target of regulators for years.
"The original intention and fundamental purpose of this reform is to make our organization more agile, shorten decision making links and respond faster," Chief Executive Daniel Zhang said in an internal letter to staff.
Each business group, he said, had to tackle the rapid changes in the market and each Alibaba employee had to "return to the mindset of an entrepreneur."
Zhang will continue as chairman and CEO of Alibaba Group, which will follow a holding company management model, and also serve as CEO of Cloud Intelligence Group.
Each of the six businesses will have a CEO as well as a board of directors and will retain the flexibility to raise outside capital and seek an initial public offering, the company said.
The exception would be Taobao Tmall Commerce Group that handles China commerce businesses and will remain a wholly owned unit of Alibaba Group.
The company would "lighten and thin" its middle and back office functions, Zhang said, but did not detail job cuts.
Investors said the split signals the clearing of regulatory worries and allays concerns that Alibaba had lost the potential to grow.
The decision could also be partly a fallout of the U.S. scrutiny of Chinese tech firms that raised national security concerns over TikTok and its parent ByteDance, said Tara Hariharan of emerging market hedge fund NWI Management.
"By paving the way for Alibaba's various new units to list, the Chinese government may be signaling less hostility towards its tech giants as a placatory message to U.S. and international investors," said Hariharan, managing director of global macro research.
The restructuring is among the biggest corporate moves by a major Chinese tech company in recent years, as the industry cowered under tighter regulatory oversight, causing deals to dry up and dampening risk appetite among businesses.
Lately, authorities have been softening their tone toward the private sector as leaders try to shore up an economy battered by three years of strict COVID-19 curbs.
Companies, however, have been hesitant, privately pointing to a lack of new supportive policies and the new regulatory framework.
The shift to a holding company structure is rare for major Chinese tech firms and could present a template for Alibaba’s peers. Decentralizing the company’s business lines and decision-making power addresses one of Beijing’s primary goals during its sweeping crackdown on the technology sector.
The government had criticized the influence of online platforms, particularly those of Alibaba and WeChat operator Tencent Holdings. That will likely mean the restructuring would draw support from government regulators who have been concerned that concentrated power in tech suppressed innovation. Alibaba and Tencent invested in hundreds of startups over the years, often helping to craft strategy as they grew.
Alibaba’s U.S.-listed shares ended New York trading Tuesday at $98.40. Tencent’s U.S. shares closed 8.03% higher, while those of Chinese internet search giant Baidu ended the day with a 4.7% gain.
"It is one step in the direction with China’s policy to reduce the monopolistic nature of the tech giants,” said Marvin Chen, an analyst with Bloomberg Intelligence. "While China tech spinoffs are not uncommon, the move looks to be more encompassing, including core businesses, that may serve as a blueprint for the industry going forward.”
Alibaba's shares had received a boost on Monday after founder Ma returned to China as his overseas stay was viewed by the industry as a reflection of the sober mood of its private businesses.
China's new premier, Li Qiang, had recognized Ma's return to the mainland could help boost business confidence among entrepreneurs and since late last year had begun asking him to come back, five sources with knowledge of the matter said.
"It does seem something of a coincidence that this is happening just as Ma seems comfortable returning. To me it suggests something that Alibaba has been wanting to do for some time, but has been waiting for the opportunity," said Stuart Cole, head macro economist at brokerage Equiti Capital.
The restructuring "does inject an element of flexibility and adaptability into the company, which currently is something of a behemoth," he said.
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