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Alibaba bids to take listed unit private for $2.5 billion

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02/21/2012 | 02:04pm CEST

Jack Ma's Chinese e-commerce firm Alibaba Group has offered around $2.5 billion to take its Hong Kong-listed Alibaba.com unit private, stressing the move was unrelated to any possible deal to buy back shares owned by Yahoo Inc.

Alibaba Group is offering investors HK$13.50 ($1.74) in cash per share to take Alibaba.com private, the same price as at the company's IPO in 2007, the two firms said in a statement late on Tuesday.

The plan to take Alibaba.com private had nothing to do with separate complex talks with Yahoo on buying back part of the U.S. Internet pioneer's 40 percent stake in Alibaba, the Chinese firm said.

"Taking Alibaba.com private will allow our company to make long-term decisions that are in the best interest of our customers and that are also free from the pressures that come from having a publicly listed company," said Ma, who is chairman of Alibaba Group and board chair of Alibaba.com.

The offer is at a more than 60 percent premium to Alibaba.com's 60-day average closing price. The shares were suspended earlier this month at HK$9.25 - a 12-week closing high, but down 30 percent from last July. The stock will resume trading on Wednesday.

The offer is for the 27 percent of Alibaba.com that Alibaba doesn't already own. The shares are held by investors including Morgan Stanley, Vanguard Group and Capital International, according to Thomson Reuters data.

"If you're an existing shareholder, that's great news. It's a 46 percent increase from the last close," said Jin Yoon, a Hong Kong-based analyst with Nomura.

"The business was going through some significant changes and getting to that type of premium would have taken some significant amount of time. So, if you're a shareholder, you weren't going to see that kind of upside in the near term."

The moves leaves Ma still to tackle the issue of how to deal with the Yahoo stake, bought in 2005 by handing its China Yahoo operations to Alibaba, plus about $1 billion.

Ma has been trying to buy back part of the stake, but talks on a complex asset swap - that might would have given Yahoo cash, a possible holding in Alibaba operating assets and still with 15 percent of Alibaba Group - have stalled, sources said, over how to value Taobao, Alibaba's fast-growing online retail business.

Alibaba Group will finance the Alibaba.com deal through external funding and internal cash resources, it said.

Alibaba has signed a $3 billion loan giving it the money it needs to buy out the unit, sources have told Thomson Reuters publication Basis Point.

Alibaba.com executives said on a call with analysts on Tuesday that the offer price could not be increased under Hong Kong regulations. And Maggie Wu, Alibaba.com's chief financial officer, said that if the offer was rejected, Alibaba would not be able to make another offer for 12 months.

Alibaba spokesman John Spelich said the move was not a pre-condition for any eventual initial public offer of the group.

"There are no plans for a group IPO right now. If it were to take place, it will take place several years in the future," Spelich said by email.

WEAK Q4 RESULTS

News of the privatization offer came shortly after Alibaba.com posted its first profit decline in more than two years in the fourth quarter of 2011, as a weak global economy hit the number of paying members for its services.

October-December net profit fell 6 percent to 385.95 million yuan ($61.3 million) from 410.4 million yuan a year earlier, roughly in line with forecasts from two analysts polled by Thomson Reuters I/B/E/S. It was the first quarterly profit fall since the 2009 third quarter.

The company, which operates an e-commerce website linking Chinese businesses to overseas buyers, warned its financial performance and membership growth could be dented further as it shifts to a value-added-services model from a subscription-based service.

"The company is undergoing a business transition, and I think things will start to probably recover in 2013," said Dick Wei, a Hong Kong-based analyst for J.P. Morgan.

Alibaba.com's paying members fell 2.8 percent in the fourth quarter to 765,363 as international buyers have become less active due to the euro zone debt crisis and a weak recovery in the United States. The e-commerce firm's exposure to international markets makes its turnover sensitive to the performance of major economies.

Alibaba.com said the changing focus of the business, which will be more on improving the platform than on increasing subscriber numbers, would impact the company's results in the medium term, and was a key factor behind the privatization.

"With this offer, we provide our shareholders a chance to realize their investment now at an attractive cash premium rather than waiting indefinitely during this period of transition," Ma said in the statement.

($1 = 6.3017 Chinese yuan)($1 = 7.7541 Hong Kong dollars)

(Additional reporting by Lee Chyen Yee in Hong Kong; Editing by Jason Subler and Ian Geoghegan)

By Melanie Lee

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