Alibaba (BABA) is one of the marketplaces and it is founded in 1999, originally was characterized as China’s answer to Amazon (AMZN). It is offering (IPO) on the New York Stock Exchange in September 2014, Alibaba has grown exponentially in both the products and services it offers and the companies it owns. This incredible growth also extended to the profits it could deliver to its shareholders. There may be numerous answers to this question, three possible motives stand out: control, reputation, and range of motion.
Many believe that Alibaba’s U.S. IPO is allowed founder Jack Ma to maintain control of the company. Alibaba’s pre-IPO structure is allowed Ma and co-founder Joseph Tsai that they are keeping control of the company despite not owning a significant percentage of shares. Ma’s reported first choice of exchanges, Hong Kong, frowns on control methods not based on majority ownership. The NYSE (NYSE: BABA at https://www.webull.com/quote/nyse-baba) and the U.S are allowing companies to use share classes to maintain control of publicly traded companies. Even with foreign companies that plan to hold a majority of shares, the share class structure offers an opportunity to raise capital without giving away significant power to the new shareholders.
There is an element of prestige in being an NYSE: BABA company, but there is also a very practical advantage. Companies trading publicly in the U.S. fall under the regulatory supervision of the SEC. Although this often means learning new processes and more paperwork for foreign companies leaping, it pays off in the long run. The increased scrutiny and transparency SEC oversight provides is seen as a plus by investors, who subsequently have more trust when reading a company’s financials and making their investments.
- Range of Motion
A U.S. listing is also allowing companies like Alibaba a bit more range of motion when it is coming to mergers and acquisitions. U.S. exchange can simplify any future acquisitions of U.S. businesses and it can lessen the scrutiny these deals might face if a foreign listed company made an offer for a U.S. listed business.
- The Bottom Line
While there may be many reasons Alibaba chose to list in the U.S., perhaps the most interesting thing about Alibaba’s IPO is not that it listed in the U.S., but that it is listed with the NYSE rather than the NASDAQ a more traditional home for Internet companies.Some suggested that NASDAQ’s mishandling of Facebook’s IPO two years is earlier making Alibaba skittish.
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