E-COMMERCE: Alibaba Finds Friend in Trump, Quagmire in Intime

Bottom line: A meeting between Jack Ma and Donald Trump is a major coup for Alibaba and bodes well for its US relations, while a privatization plan for its partly owned Intime Retail reflects its spottier record for strategic investments.

Jack Ma scores Donald Trump meeting

E-commerce giant Alibaba (NYSE: BABA) is wasting no time making big headlines in the New Year, starting with a major coup that has seen founder Jack Ma become the first big Chinese business leader to score a meeting with incoming US president Donald Trump. At the same time, the company is also suffering a much smaller defeat back at home, with word that Alibaba will help to privatize Intime Retail (HKEx: 1833), after becoming a major shareholder in the brick-and-mortar retailer nearly 3 years ago. 

These 2 stories nicely summarize Alibaba’s somewhat schizophrenic nature, which stems directly from Jack Ma’s own personality. On the one hand, Ma is a marketing and PR genius, able to hype his company at any opportunity and land major meetings with global leaders including outgoing US President Barack Obama and former British Prime Minister David Cameron.

But at the same time, Ma’s actual business acumen is a bit spotty, resulting in acquisitions and strategic moves that often look poorly researched and destined for problems. That personality is almost the exact opposite of Internet arch-rival Pony Ma, founder of Tencent (HKEx: 700), who is terrible at PR but quite masterful in terms of business acumen.

But right now the spotlight deservedly belongs to Jack Ma, one of China’s richest men, who was one of a number of business leaders to meet with Trump on Monday as he prepares to become the next US president. True to form, Jack Ma, who is no relation to Tencent’s Pony, was quick to tell the world about his 40-minute meeting, and also how cordial it was. (English article)

More specifically, Ma told Trump about his plans to add thousands of US online merchants to the online shopping malls that have become Alibaba’s big bread winner. Ma estimated Alibaba could add 1 million such small- and medium-sized US merchants to its network, each creating a single job, amounting to 1 million new American jobs.

I’m not an expert on Trump’s meetings since his surprising victory in November, but to my knowledge this is the first with a major Chinese business leader since then. Such cordiality would contrast sharply with the sentiment from one of China’s other richest businessmen, Wang Jianlin, whose Wanda Group has been on a recent buying binge in Hollywood. Wang warned Trump in a speech last month that any attempts to rein in or tamper with his buying could result in the loss of many American jobs.

Positive Sign

The latest media reports point out that the Trump-Ma meeting comes as US-China trade relations could face a bumpy patch ahead due to previous anti-Chinese statements made by the incoming US president. Alibaba itself also faces some headwinds in Washington, which recently returned the company’s name to a list of “notorious” markets for trafficking in pirated goods.

I’m not a huge fan of Jack Ma’s publicity-seeking ways, which tend to lack substance and are hugely self promotional. But in this case I really do have to congratulate him on scoring this Trump meeting, which clearly was granted on a friendly rather than adversarial basis. Accordingly, the pow-wow could bode well for Alibaba’s future relations with Washington.

We’ll close with a brief look at the Intime privatization plan, which was disclosed in a new filing by the Hong Kong-listed company. Under the plan, a management-led group, which includes Alibaba, is offering HK$10 for each Intime share, marking a 42 percent premium over the stock’s last closing price. (English article)

Alibaba first purchased around 10 percent of Intime’s shares in April 2014, in a deal that looked dubious to me due to Intime’s focus in the dying realm of brick-and-mortar department stores. (previous post) It later boosted its stake to a current 28 percent, and would see the figure rise to 74 percent under the privatization plan. Intime’s shares soared about a year after the deal was announced, but have slumped since then and are now down about 20 percent from where they traded at the time of Alibaba’s original purchase.

That particular stock trajectory looks something akin to that for Alibaba.com, Alibaba’s original Hong Kong-listed unit whose main asset was the company’s B2B marketplace. That unit also did quite well in its first few years of trading in Hong Kong, but ultimately languished and was privatized by the parent Alibaba in 2012.

Obviously not every publicly traded entity will succeed, which was clearly the case this time around with Intime. But this particular disappointment does underscore the fact that Jack Ma, while a PR genius, has a far more mediocre track record when it comes to M&A and major investments. That reality is far more important than PR at the end of the day, and could hobble the company’s broader performance over the longer term.

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