Why Jack Ma May Choose New York for Alibaba IPO

NEW YORK ( TheStreet) -- Everyone who follows the Internet has been expecting an Alibaba IPO this year.

It would be one of the biggest Internet IPOs ever and could possibly exceed Facebook's ( FB) public offering last year. Some observers expect Alibaba's value to top $100 billion once shares of the Chinese e-commerce company start trading.

Before yesterday, most people had been expecting Alibaba to list in Hong Kong. After all, Alibaba founder Jack Ma listed business-to-business portal Alibaba.com on Hong Kong's stock exchange back in 2007. (He took it private last year in preparation for a future Alibaba Group IPO.)

Ma is also reported to be close friends with the CEO of the Hong Kong Exchange. The two men are believed to have been in deep discussions over the past few months.

It's also been rumored that the Chinese government itself has been trying to pressure Ma to list in Hong Kong. Beijing sees Alibaba as having the potential to be one of the most successful Internet companies in the world for years to come.

That would bring prestige to China. Having Alibaba list in Hong Kong would also demonstrate that the biggest companies in the world can stay listed in Hong Kong and continue to grow.

But overnight, there came several reports from the Chinese media that Jack Ma had decided he was more interested in listing his company in New York rather than Hong Kong.

Representatives from the New York Stock Exchange, a unit of NYSE Euronext ( NYX), have been lobbying Ma just as hard as those from the Hong Kong Exchange. But the New York Stock Exchange managed to get a big foot in the door with Ma this week.

It's all about control.

Ma owns 7% of Alibaba. That's surprisingly low for a founder of a big successful Internet company. Jeff Bezos, for example, still owns a bit less than 20% of Amazon ( AMZN), which he founded in 1994. Mark Zuckerberg owns 30% of Facebook.

Ma must be bothered by this, although you can't fault him for doing what he needed to do in founding Alibaba in 1999 and growing the company by taking outside capital from powerful foreign partners.

At present, Masayoshi Son's SoftBank owns 36% of Alibaba, while Yahoo! ( YHOO) owns 24%. Those stakes are far larger than the holdings of Ma and his management team.

That ownership table will change if Alibaba goes public, however. The September 2011 agreement with Yahoo! allows Alibaba management to buy half of Yahoo!'s stake when Alibaba conducts an IPO. That will give the management and Ma and additional 12% of the company.

But even still, Ma's share will stay small.

According to these recent reports, Ma likes the idea of being able to create a dual-class share structure, something that's possible in New York. That would allow him to keep effective control over Alibaba as long as he wants, even if his ownership in the company remains small. Zuckerberg and Mark Pincus at Zynga ( ZNGA) have used dual-class structures to keep control of their companies.

Hong Kong's Exchange does not allow any publicly listed company to have dual-class share structures.

None of the Chinese media reports on this issue mention the possibility of Alibaba listing on Nasdaq, even though the same dual-class share structure is possible on that exchange, too. New York appears to be the only option on the table at this point.

Alibaba may not necessarily delay its IPO by choosing New York over Hong Kong. I expect the company to eye something like a November IPO date to ensure the good news of its traditionally strong fourth quarter gets discussed during the IPO roadshow.

If a November IPO is in the offing for the NYSE, you could expect an S-1 filed from Alibaba any day.

Facebook's S-1 was filed in early February 2011. The company held its IPO in the third week of May.

Many American investors likely will take some additional comfort if Alibaba trades in New York, because any U.S.-listed firm puts itself under the scrutiny of the Securities and Exchange Commission.

After the small-cap Chinese fraud cases of a few years ago, some investors will take a New York listing as a sign that Alibaba is confident in its own numbers and willing to let the SEC pore over them.

That's why, on the whole, I would say a New York listing would be a net positive for Alibaba and Yahoo!'s shares.

At the time of publication, Jackson held shares of YHOO.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Eric Jackson is founder and Managing Member of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. In January 2007, Jackson started the world's first Internet-based campaign to increase shareholder value at Yahoo!, leading to a change in CEOs in 2007. He also spoke out in favor of Yahoo!'s accepting Microsoft's buyout offer in 2008. Global Proxy Watch named Jackson as one of its 10 "Stars" who positively influenced international corporate governance and shareowner value in 2007.

Prior to founding Ironfire Capital, Jackson was President and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and governance consulting firm. He completed his Ph.D. in the Management Department at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management and Corporate Governance, and holds a B.A. from McGill University.

He was previously Vice President of Strategy and Business Development at VoiceGenie Technologies, a software firm now owned by Alcatel-Lucent. In 2004, Jackson founded the Young Patrons' Circle at the Royal Ontario Museum in Toronto, which is now the second-largest social and philanthropic group of its kind in North America, raising $500,000 annually for the museum. You can follow Jackson on Twitter at www.twitter.com/ericjackson or @ericjackson.

You can contact Eric by emailing him at Dr.eric.jackson@me.com.

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