Upside seen to Alibaba's scrapped Cainiao IPO

Alibaba Group Holding Ltd's latest move to scrap a planned initial public offering for its unit Cainiao Smart Logistics Network will help strengthen synergy between its logistics services and e-commerce businesses and expand its presence in overseas markets by increasing investment in global logistics networks, industry experts said.

The tech heavyweight said late Tuesday that Cainiao had withdrawn its IPO plans and listing application on the Hong Kong stock exchange. Alibaba, which holds a 64 percent stake in Cainiao, said it intends to invest up to $3.75 billion into acquiring the remaining interest from minority investors and employees with vested equity.

"Given the strategic importance of Cainiao to Alibaba and the significant long-term opportunities we see in building out a global logistics network, we believe this is an appropriate time to double down on Alibaba's investment in Cainiao," Joe Tsai, chairman of Alibaba, said in a statement.

Alibaba said it plans to align part of Cainiao's business to better realize strategic synergies with its online marketplaces Taobao and Tmall as well as Alibaba International Digital Commerce Group, so as to support Cainiao in executing a long-term strategic expansion of its global logistics network.

The offer, which values Cainiao at $10.3 billion, underscored Alibaba's commitment to investing in and strengthening its e-commerce operations to regain market share and drive growth, it added. Founded in 2013, Cainiao delivers tailored logistics services to Alibaba's domestic and international e-commerce businesses.

Alibaba initially announced in May 2023 a comprehensive asset restructuring plan that included a Cainiao IPO. At the time, the company believed a separate listing would better reflect the intrinsic value of its subsidiary businesses. Cainiao officially filed its application for an IPO on the Hong Kong bourse in September.

"However, given the market conditions, Cainiao's IPO at this juncture would unlikely garner a valuation that reflects its strategic value to Alibaba's business nor achieve the original purpose of unlocking value for its shareholders," the company said.

The scrapped IPO comes as Alibaba has set its focus on growing its core e-commerce and cloud computing businesses. Alibaba's e-commerce business has come under pressure from rivals such as PDD Holdings, which often offers products at lower prices.

Jiang Han, a senior analyst at market consultancy Pangoal, said the move will be conducive to further integrating Cainiao's logistics services with Alibaba's e-commerce business, enhancing delivery efficiency and improving user experience, so as to strengthen Alibaba's competitiveness in the whole e-commerce ecosystem.

The withdrawal of Cainiao's listing plan and increased investment in the logistics sector will not only speed up the expansion of Cainiao's global logistics network and enhance its influence on the global stage, but also help Alibaba gain an upper hand in the fiercely competitive e-commerce and logistics industries, Jiang said.

Chen Hudong, a special researcher at the Internet Economy Institute, a domestic consultancy, said Alibaba is paying more attention to the coordinated development of different business segments, while Cainiao is an integral part of Alibaba's core business and an important infrastructure entity for the development of e-commerce.

The cancellation of the planned Hong Kong IPO for Cainiao also suggests that the market environment facing Alibaba is undergoing significant changes, and it is reasonable for the company to make some changes to its strategy, Chen said.

Alibaba announced plans last March to split its business into six main units, with each separate unit having the flexibility to raise outside capital and seek its own IPOs — the most significant organizational change to the company in its 24-year history.

The company said in November it will not proceed with the full spinoff of its cloud unit due to uncertainties caused by the recent expansion of US export controls on advanced computing chips. It has also "put on hold" plans to list Freshippo, its grocery and fresh goods retail chain.