Alibaba Group Holding Ltd., run by billionaire Jack Ma, offered HK$13.50 a share for the 27 percent it doesn’t already own of Alibaba.com. The price is a premium of 60% over the 60-day average closing price of the company’s shares.
According to the Alibaba Group statement, the major factor driving the decision to privatize is so that the company can implement a shift in its business strategy that could “result in slower revenue growth and less earnings visibility in the short- to medium-term.” The company’s business was previously driven by a focus on rapidly recruiting subscribers who pay to sell products on the site, but the pace of adding subscribers has slowed down as Alibaba.com has struggled to add anti-fraud measures to the site.
Alibaba.com missed profit estimates in today’s earnings report for 4Q2011. Net income declined 6% year-over-year for $61 million for the quarter. Analyst Jiong Shao of Macquarie Group told Bloomberg Television that “The state of the business is deteriorating,” and that the company will lose more customers in 2012.
The privatization announcement caused Alibaba.com’s shares to jump 43% in Hong Kong today. Investors should be on the lookout for the privatization to affect the Guggenheim China Technology ETF (CQQQ, quote), which devotes 4.45% of its holdings to Alibaba.com, and possibly the Guggenheim China Small Cap Index ETF (HAO, quote), which stakes 1.21% of its holdings on the company.