Alibaba Partnership Not Seeking Dual Class Listing

Updated from 11:16 a.m. ET to include closing Yahoo! share prices on page 2.

NEW YORK (TheStreet) -- Chinese e-commerce giant Alibaba Group confirmed on Sunday the company will list its shares in the United States instead of Hong Kong. The move comes after a long-running dispute with Hong Kong regulators on Alibaba's partnership structure.

Alibaba's partnership extends to company founder Jack Ma, over two dozen senior executives who have served the company for at least five years and contributed to the company's development over the years. Partners own approximately 10% of Alibaba's shares while the rest are held by Yahoo!, Softbank, and a handful of private equity and sovereign wealth investors.

The Partnership

Collectively, Alibaba wants to conduct an initial public offering where its partnership will have the ability to nominate a majority of the company's board of directors. The partnership structure, however, does not call for a dual class listing of shares that would might give Mr. Ma, insiders and original investors increased voting rights for their shares.

While Alibaba's partnership would be able to nominate a majority of the board, the election of those nominees would come down to a shareholder vote where every investor would have the same voting rights. According to Alibaba, it's partnership structure is aimed at preserving the company's culture.

There has been some confusion of whether the partnership structure would entail a dual class structure of stock. 

In a September blog post, Alibaba said, "If no compromise is reached, Alibaba could decide to list instead in New York, where bourses permit a dual-class share structure enabling small groups of founders and managers at tech companies such as Google and Facebook to control strategic direction."

That may have been a misstatement, as the partnership might not seek a dual class stock in the U.S., but instead, some mechanism that would give the partnership the ability to nominate a majority of Alibaba's members.

While Alibaba's decision to conduct a U.S.-based IPO comes down to regulatory battles abroad, Mr. Ma's insistence on having influence over the company's culture indicates change afoot in the tech sector to give founders more autonomy.

"This will make us a more global company and enhance the company's transparency, as well as allow the company to continue to pursue our long-term vision and ideals," Alibaba said of its decision on the company's blog.

"Should circumstances permit in the future, we will be constructive toward extending our public status in the China capital market in order to share our growth with the people of China," the company added.

The IPO

In late January, a financial disclosure from Yahoo! showed that Alibaba's revenue had grown by over 50% year-over-year, as the company's gross margins expanded and spawned a turn to profitability. Yahoo! owns approximately 24% of Alibaba's shares.

Between July and September, Alibaba earned $1.77 billion in 2013 revenue, a 51% increase from the $1.17 billion the company earned over that time-span a year ago. Those rising revenues, taken with a 56% increase in gross profit to $1.26 billion, helped the company turn to a $801 million net profit in 2013, from a $246 million loss a year earlier.

That revenue growth and profitability may compare favorably to U.S-based competitors such as Amazon (AMZN) and eBay (EBAY) as Alibaba moves towards an IPO.

Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan and Morgan Stanley will lead Alibaba's IPO, while Citigroup will have a slightly more junior role, a person close to the situation told TheStreet.

Alibaba is China's largest e-commerce company and could conduct an IPO and fetch a valuation that is larger than Facebook's  (FB) record-breaking $16 billion IPO in May 2012, which valued the Mark Zuckerberg founded company around $100 billion.

The company is compared to Amazon, eBay, PayPal and Google because of the scope of its consumer and professional e-commerce operations and its AliPay online payments unit.

SINA, Weibo and Alibaba

Alibaba's confirmation of a U.S.-based listing comes just a few days after Weibo, a social networking site, often referred to as the Twitter (TWTR) of China, disclosed its prospectus to file for an IPO in the U.S.

Beijing-based Weibo is an offshoot of U.S.-listed social networking site SINA (SINA) that was launched in 2009 and counts Alibaba as a large minority investor.

Weibo's IPO prospectus states that the company intends to list both Class A and Class B shares, with each Class B share entitled to three voting rights per A Share. The prospectus also indicates that SINA intends to own more than 50% of Weibo's outstanding voting shares, meaning the company will be considered a "controlled company" in the U.S.

Dual Class Citizens

While Alibaba's decision to prioritize its partnership and list in the U.S. comes on the heels of a long fight with regulatory bodies in the company's home market, it also comes as activist investors challenge the boards and management of many of the largest companies in Silicon Valley.

Activist investor Carl Icahn spent the better part of 2013 advocating for an expanded share repurchase at Apple (AAPL), a campaign the billionaire dropped when CEO Tim Cook decided to buy $14 billion in stock in the wake of the iPhone-maker's disappointing first quarter results.

Icahn also spend much of 2013 contesting a leveraged buyout of PC-maker Dell, and at one point had organized significant shareholder opposition to the takeover deal proposed by founder Michael Dell and private equity firm Silver Lake Partners. Michael Dell and Silver Lake Partners were only able to relent on the buyout when a special committee tasked with the company's sale decided on a last-minute change to the voting standards of the takeover.

With fights against Dell and Apple in the rear-view mirror, Icahn has waged an exceedingly scathing campaign against eBay and its current management and board of directors.

Other activists have also taken on prominent tech sector heavyweights in the U.S., with some companies not far from Alibaba's purview.

Daniel Loeb of Third Point Management waged such a harsh campaign against Yahoo!  (YHOO) it eventually got the company's CEO fired and led to a complete re-vamp of the Internet pioneer's board of directors. One board member, founder Jerry Yang, understood early-on the promise of Alibaba and made Yahoo! a major investor.

While Yang is long gone and Loeb has sold down his stake in Yahoo!, the company continues to benefit from its large minority stake in Alibaba as the company has moved towards an IPO.

Yahoo! shares rose over 4% in Monday trading on Alibaba's disclosure it would list its shares in the U.S. Shares in the company closed at $39.11, within reach of five-year highs hit earlier in 2014.

Single in Silicon Valley, Dual Class

Facebook and Google (GOOG) currently stand out in Silicon Valley as two of the tech companies with a dual class voting standard.

Facebook founder Mark Zuckerberg retains voting control of the company's shares, allowing the maverick CEO to quickly decide upon acquisitions like a $19 billion deal for WhatsApp and a $1 billion purchase of Instagram. Google co-founders Sergey Brin and Larry Page hold a combined voting control of the company's shares.

Twitter, Amazon, eBay and Yahoo!, by contrast, have a single standard of stock, which might make those companies more susceptible to activist investors.

Alibaba, depending on how it will seek to give its partnership the ability to nominate a majority of board directors, may represent a middle ground.

-- Written by Antoine Gara in New York.

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