Question

QUESTION 1: Why did Alibaba’s owners decide to take the company public? What benefits did the decision offer the company?

Answer 1

Though far from proven, the best hypothesis about why Alibaba launched in the U.S. is that it allowed founder Jack Ma to maintain control over the company. Alibaba'spre-IPO structure allowed Ma and co-founder Joseph Tsai, despite not owning a significant percentage of shares, to retain control of the company. Ma's recorded first choice of exchanges, Hong Kong, frowns on methods of control not majority ownership based. Nonetheless, NYSE and the U.S. in general require companies to use share classes to maintain control over publicly traded firms.

If a company is listed in the U.S., it will have the implicit approval stamp on the SEC until the regulator exposes some issue. As a result, when reading the financials and making the investment, investors have more confidence. Whether that is completely justified is another thing, but for decades investors around the world have been investing in U.S. stocks. Alibaba will make use of that faith to put itself even more clearly as Amazon's main rival. The U.S. listing will make it even easier to pick Alibaba's growth story over Amazon's for investors looking for access to online marketplaces.

The consensus seems to be that Alibaba has selected the U.S. to hold the firm in charge. That said, the U.S. listing also offers a boost to the credibility of the company as well as a contribution to M&A operation. Perhaps the most interesting thing regarding Alibaba's IPO is not that it was listed in the U.S., but that it was listed with the NYSE instead of the NASDAQ-a more traditional home for internet businesses. Either way, because of the money generated for the exchanges and investment banks involved, the U.S. exchanges will never turn away foreign companies looking to list.