Slashdot Mirror

← Back to Stories (view on slashdot.org)

Is Alibaba Comparable To a US Company?

Posted by timothy on from the well-the-name-is-magical-to-start dept.

lpress writes Alibaba is this week's hot news — they have had a lengthy PR campaign (preceded by a documentary film) followed by a record-setting stock offering. After a day of trading Alibaba's market capitalization was comparable to that of established tech giants. But, there are cultural and structural differences between Alibaba and U.S. companies. Alibaba is tightly woven into a complex fabric of personal, corporate and government organization relationships. The same can be said of information technology companies in Singapore. Is owning a share of, say, Apple, conceptually the same as owning a share of Alibaba?

9 of 126 comments (clear)

  1. What a question? by bogaboga · · Score: 5, Interesting

    Is owning a share of, say, Apple, conceptually the same as owning a share of Alibaba?

    How can this be the case? In a few instances: -

    If one is looking for return on investment, then it's probably the same.

    If on the other hand, one is looking for an avenue to influence company direction, owning shares in Alibaba and startng this effort is almost a guaranteed exercise in frustration, for Alibaba is a company with capitalist "genes" which have a tinge of socialist, heavy-handed characteristics.

    I should add that this isn't bad at all.

    1. Re:What a question? by Nemyst · · Score: 5, Informative

      Alibaba, socialist? The only thing socialist about it is that the Chinese party calls itself communist. Alibaba is a privately owned but state-blessed corporation with heavy state support. The communist party has a hand in pretty much every large Chinese corporation these days, and in the end they have the final call, and they'll be a lot more meddlesome than even the most pedantic of state regulators in the US.

      Plus, you can't even buy shares for Alibaba, you only get shares for a Cayman Islands shell corporation which has a contract to receive the profits from Alibaba proper. You get absolutely no decision-making power, no influence, and frankly little in the way of actual worth.

  2. Comparable? Not really. by caladine · · Score: 5, Insightful

    When someone buys a share in Apple, they actually get an ownership share in Apple.
    When someone says they're buying a share in Alibaba, they actually buying shares in a VIE called Alibaba Group Holdings Limited which was incorporated in the Cayman Islands. The VIE has contractual rights to Alibaba China's profits, but not anything that resembles ownership.
    It's not the same thing as share of Apple at all.

    1. Re:Comparable? Not really. by phantomfive · · Score: 4, Interesting
      I read an article recently on exactly that topic, which is probably worth quoting:

      The market is fully capable of pricing the fact that Alibaba stockholders don't actually own a direct claim on Alibaba's Chinese assets and can't elect its board. Truth be told, shareholders don't "own" any company; they own whatever rights are specified in the share agreement........

      True comfort for shareholders comes not from legal boilerplate, but from incentives. Alibaba founder Jack Ma could take the $22 billion raised Friday and stiff his foreign partners. That's a risk. But his self-interest is otherwise. He wants a strong stock as a currency for acquisitions. He wants stock options to motivate his increasingly global management team. He wants easy liquidity for himself and other insiders. .....

      when investors begin to worry about the actual rights specified in a share agreement, it usually means something has already gone seriously wrong.

      Alibaba is probably as good as any stock. If things go wrong, things go wrong.

      --
      "First they came for the slanderers and i said nothing."
    2. Re:Comparable? Not really. by Animats · · Score: 4, Informative

      When someone buys a share in Apple, they actually get an ownership share in Apple.

      Apple, yes. Google or Facebook, no. Google and Facebook have two classes of stock. The class with all the voting rights is in both cases controlled by the founders. The publicly traded shares cannot outvote them, even if someone bought all of them.

      Until recently, multiple classes of stock were prohibited for NYSE-listed companies, which tended to discourage doing this. (The classic exception was Ford, which has two classes of stock, the voting shares controlled by the Ford family. This predates that NYSE rule.)

      This matters when the insiders make a big mistake and the stock starts going down. There's no way to kick them out.

  3. Re:Style by Dahamma · · Score: 5, Insightful

    You don't know anything about it, do you?

    Basically if you buy "Alibaba" stock you actually bought stock in a Cayman Islands holding company that is somehow related to the actual Chinese company, since China does not allow foreigners to own stock in Chinese companies. It was a weird/complicated enough arrangement that apparently the Hong Kong stock exchange declined to offer it, and the NYSE was the second choice. It's unlikely of course, but if the Chinese government wanted to "close the loophole" investors could be out $20B+ in a day.

    So, no, it's not conceptually the same thing at all...

  4. Re:Place of Business. by tlambert · · Score: 4, Insightful

    If a US company listed in the US decided to screw its shareholders, it and the board can be held accountable in US courts.

    LOL, when has that ever happened

    It's happened many times; it's called "malfeasance" or "misconduct", and it's punishable as criminal fraud.

    This is why corporate board members these days are all about "fiduciary responsibility", even if they have to club baby seals to death in the shallow waters where they are coated in oil from the Exxon Valdez.

  5. US investors don't have shares in Alibaba ... by perpenso · · Score: 5, Insightful

    You seem to be speaking of Alibaba the Chinese retailer, so you are off on a tangent since that is not what US investors are putting their money into.

    What US investors are buying is interest in a Cayman Island “variable-interest entity”. Stockholders won't have the usual influence on corporate governance or management, such as it is. My understanding is that Chinese law doesn't allow foreigners to own a Chinese strategic asset. So this Cayman Island entity was created.

    http://www.marketwatch.com/sto...

    1. Re:US investors don't have shares in Alibaba ... by khallow · · Score: 4, Interesting

      I agree. Asking the question indicates ignorance of this arrangement. My view is that owning a share of this would indicate poor investment judgment and be a strong signal to me to stay clear of the entity in question.