Alibaba Cancels Cainiao IPO and How it Communicated the News

The narrative in China VS. US tells a slightly different story

Alibaba announced Cainiao will not IPO in Hong Kong.

I wrote an FT Chinese column story on how Alibaba communicated the Cainiao news and the differences in the U.S. and China. My thesis：

Alibaba's domestic communications strategy in China focuses on creating a positive image of Cainiao’s overall operational growth and bright future ahead. Overseas, it takes on the "investor perspective," emphasizing capital returns. However, it's challenging to cater to both Chinese and English-speaking audiences, and it also raises more questions than answers for Alibaba's attitude towards Cainiao and the real reasons behind the withdrawal of Cainiao's IPO.

The full piece below is translated and edited for clarity.

---

As of now, all IPO plans for Alibaba's subsidiaries have been put on hold.

On March 26, Alibaba announced withdrawal of Cainiao's IPO in Hong Kong and purchase from Cainiao's minority shareholders and employees' vested equity. This isn't the first time Alibaba has withdrawn anticipated IPO plans. In its 2023 third-quarter financial report, Alibaba disclosed that it was postponing a the. Freshippo IPO. In November 2023, Alibaba Cloud Intelligence Group announced it would "no longer pursue a separate listing."

With the precedents of Freshippo and Alibaba Cloud's IPO plans shelved, Alibaba announced the withdrawal of Cainiao's IPO application with a great deal of PR effort through official announcements and media reports to justify this decision.

To understand this context, one must start from March 28, 2023, when Alibaba initiated the largest organizational restruturing since its establishment 24 years ago - the "1+6+N" reform.The six business groups are the Cloud Intelligence Group, Taobao Tmall Business Group, Local Services Group, Global Digital Business Group, Cainiao Smart Logistics, and Digital Media and Entertainment Group. According to the plan at that time, business groups and companies that meet the conditions could pursue independent financing and listing in the future.

Now, a year after Alibaba's "1+6+N" reform, the postponements or cancellations of its subsidiaries' planned listings suggest that the Alibaba idiom "Together we are a blazing fire, apart we are brillant stars scattered across the sky" (聚是一团火，散是满天星) has not come true.

Moreover, the domestic and international PR tactics of the Cainiao announcement, and the discrepancies of the messaging, do not adequately reassure investors.

Domestically in China, Alibaba Group's announcement stated, "To better strengthen synergy with Alibaba's e-commerce business and continue supporting Cainiao in expanding the global logistics network investment, we decided to withdraw Cainiao's IPO application and propose to purchase the equity of Cainiao's minority shareholders and employees' vested equity." (“为更好加强与阿里电商业务协同，以及继续支持菜鸟扩大全球物流网络投入，决定撤回菜鸟上市申请并要约收购菜鸟少数股东的股权和员工已归属的股权”)

In essence, the statement expresses that Alibaba views Cainiao as a strategic business that can continue to grow and expand its global logistics network. Also, Alibaba's investment in Cainiao will likely be more substantial than the resources Cainiao would achieve from an IPO. The Chinese narrative emphasizes that listing is not the only criterion for success, and Cainiao's vision is to become the infrastructure for global e-commerce. The equity purchase is a temporary measure under the current market conditions. And it goes as far as saying Cainiao's employees feel "a stronger sense of gain, [and their morale] further boosted.”

The emphasis in Alibaba's domestic statements and reports slightly differs from the the English SEC routine disclosures.

Internationally, on the morning of March 26, Alibaba called a last minute conference call to discuss Cainiao's IPO update and the share purchase offer. Alibaba Group's Chairman, Joseph Tsai, stated, "Valuation does not reflect the real strategic value. In times of market downturn and lack of liquidity, forcing a transaction that does not release shareholder value is meaningless." (“估值无法反映真正战略价值，在市场低迷、缺乏流动性的时候，硬要推进交易而不能为股东释放价值，没有意义”。)

At the same time, US media reported on the news with different tones. Reuters closely followed the official talking points, focusing the reporting on that the downturn in Hong Kong's capital market as the main reason Cainiao decided not to list at this time, and the move is "investing in Cainiao’s global infrastructure." Bloomberg explores Alibaba's decision in the context of the restructuring and provided more context: “the objective now is to combine operations to drive the mainstay commerce arm, while selling off non-core assets such as stakes in social media platform Bilibili Inc. and EV maker Xpeng Inc.” (Disclosure: I was quote in the Bloomberg piece.)

Alibaba's PR strategy in China focuses more on creating a positive image of the company's overall operational soundness; overseas, it takes the “investor perspective," emphasizing capital returns.

However, it's challenging to cater to both Chinese and English-speaking audiences. This also brings more questions than answers about Alibaba's attitude towards Cainiao and the real reasons behind the withdrawal of Cainiao's IPO application.

Two months ago, Alibaba Group's Chairman Joseph Tsai responded to inquiries about Cainiao and Freshippo's IPO plans during an earnings call, stating that the goal of last year's company reorganization was to reflect the intrinsic value of each business unit in the group's valuation. Whether to proceed with or cancel spin-offs and financing transactions depends on market conditions, and the current market conditions do not reflect the value of these businesses.

According to Chinese business news outlet Yicai, based on the offer price for Alibaba's purchase of employee shares at this time, Cainiao's valuation is $10.3 billion (approximately 74.35 billion RMB). On the call, Alibaba's board confirmed that the price reflects fair value. It's worth noting that in May 2023, the Hurun Global Unicorn List valued Cainiao at 185 billion RMB. The gap indicates that Cainiao’s valuation has plummeted by over a hundred billion RMB in less than a year.

When Alibaba announced the withdrawal of Cainiao's IPO, it did not delve into the reasons for why "valuation does not reflect the real strategic value" and skirted around the issue, attributing all the blame to market conditions. Moreover, the sentiment conveyed in this assessment seems inconsistent with the "stronger sense of gain" mentioned in the Chinese narrative. With the valuation plummeting by nearly a hundred billion RMB, is Cainiao employees’ share value truly gives them a “strong sense of gain”?

Alibaba's insistence on justifying the withdrawal of Cainiao's IPO stems from the need to maintain investor confidence. Cancelling Cainiao's IPO would further weaken investors' confidence in the results of Alibaba's restructuring and raise doubts about its ability to create value for shareholders, and impact the capital market's judgment on whether Alibaba Cloud eventually will be listed.

External communication addresses potential reputation issues for companies and helps establish a positive corporate image. There are many PR tactics, and beating around the issue is not the way to go.