Technology

The Massive Number of Risk Disclosures in the Alibaba IPO Filing

Alibaba Group Holding Ltd. is set to come public in the week ahead. There are many things to consider in this offering. It is a great opportunity to own one of the most dominant Web companies in the entire world. 24/7 Wall St. also wants to point out here that the risks that are specific to Alibaba are far from beyond those of just being considered a Chinese company coming public in America, and they are far from normal compared to domestic IPOs as well.

Does more than 40 pages worth of risk factors (see below) sound even remotely close to normal to you?

Alibaba is set to be under further control of Jack Ma and affiliates and parties tied to him. The company has an offshore structure that makes it much harder for shareholders to enforce legal and structural rights. The company is also expected to have a market capitalization rate of roughly $160 billion.

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As we noted last Friday, Alibaba founder and CEO Jack Ma is selling 12.75 million shares and was shown to be reducing his Alibaba stake to 7.8% from 8.8%. Yahoo! Inc. (NASDAQ: YHOO) is selling 121.74 million shares, reducing its stake from 22.4% to 16.3% — said to be slightly lower in shares being sold than originally expected. The other major shareholder is Japan’s SoftBank, which owns 797.74 million shares (34.1%) and is selling none of them.

Alibaba will have 2,465,005,966 ordinary shares outstanding after this offering (versus 2,341,929,035 ordinary shares outstanding immediately prior to this offering). The company showed in the filing that the number of ADSs outstanding immediately after this offering would be 320,106,100 (or 368,122,000 ADSs if the underwriters exercise in full their option to purchase additional ADSs), not including 128,417,070 of its ordinary shares, representing 5.2% of the outstanding ordinary shares immediately after this offering, that will not be subject to lock-up agreements and may be freely converted into ADSs from time to time.

The labeled “Risk Factors” section of the latest S-1/A filing made other such sections in questionable IPOs look short and conservative. This Risk Factors section is close to 44 pages, if you back out what would be a short final page. We thought that Facebook had a long list of IPO disclosures under its Risk Factors section, but that was “only” 22 pages. Alibaba has twice that much.

24/7 Wall St. has included the seven other specific bullet points located in the risk factors that we have an issue with. The points have been highlighted in bold and has been handled as if they are a quote (taken verbatim from company’s view) from the SEC filing.

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