Listings: Alibaba In Setback, Spreadtrum Bows

Spreadtrum shareholders approve buyout

There are some interesting news bits at opposite ends of the listing spectrum today, with word that e-commerce giant Alibaba has received a setback in its plans for a Hong Kong IPO, while chipmaker Spreadtrum (Nasdaq: SPRD) is on the cusp of de-listing from the Nasdaq. In the middle of the spectrum is newly listed e-commerce firm LightInTheBox (NYSE: LITB), whose honeymoon after its June IPO has abruptly ended with a rapid tumble in its share price which has resulted in a newly filed shareholder lawsuit.

All of this news underscores the fact that while it’s prestigious and advantageous to be a publicly listed company, such listings also carry a certain level of risk. That risk can be especially high for inexperienced Chinese companies, which are often unfamiliar with the many sharks that troll the waters of stock markets in New York and increasingly in more distant locations like Hong Kong.

Let’s start off with a look at Alibaba, which would reportedly prefer to make its highly anticipated multibillion-dollar IPO in Hong Kong. The only problem is that Alibaba founder Jack Ma wants to structure the deal in a way that lets his management team and other major investors maintain control of the company, which isn’t allowed under Hong Kong stock exchange listing rules.

Previous reports indicated that Alibaba was trying to negotiate an exception to the rules (previous post), but now media are reporting that those talks have ended with the securities regulator’s refusal to yield to Alibaba. (English article) On the one hand, I can sympathize with Ma to some extent, as he was previously frustrated after his sale of 40 percent of his company to Yahoo (Nasdaq: YHOO) in 2005 ultimately led to numerous clashes with the US search giant.

But at the same time, Ma should also realize that you can’t just take people’s money without giving them some voice in your company, which is what he seems to want to do with his bid for an exception to the Hong Kong listing rules. It will be interesting to see if Ma now decides to take his IPO to New York, which would also love to host the mega-offering and where the structure Ma wants would be permissible. My guess is that he will ultimately decide to list in Hong Kong, since he’s likely to get a better valuation and longer term investor interest there due to the market’s closeness to China.

Moving on, there’s not too much to say about Spreadtrum’s imminent de-listing, after shareholders approved a buy-out offer for the company from Tsinghua Unigroup. (company announcement) Spreadtrum first announced an offer in May, and Unigroup later raised its price in June to $31 per share, representing a 40 percent premium over Spreadtrum’s price before the offer was announced.

Spreadtrum’s imminent de-listing is just the latest in a wave of similar privatizations of US-listed Chinese firms, whose shares have been depressed for the last 2 years after a series of accounting scandals led to an investor confidence crisis. I personally find this imminent de-listing of Spreadtrum quite disappointing, as I think this was one of the more promising US-listed Chinese tech firms due to its niche position as a maker of low-cost smartphone chips.

Finally let’s look at LightInTheBox, which saw its shares double in the months after its June IPO in New York, only to lose most of those gains over the last 3 weeks after reporting disappointing results. (previous post) LightInTheBox previously said it was aware of a shareholder lawsuit being filed against it, and now a law firm has formally announced the lawsuit. (law firm announcement)

I said before that LightInTheBox was probably guilty of exaggerating some of its financials and prospects in a bid to stir up investor interest before its IPO, which is probably quite common among young Chinese companies making overseas listings. Now it will have to pay the cost for those exaggerations through this lawsuit, providing a valuable lesson to LightInTheBox of some of the many perils of being a publicly listed company.

Bottom line: Alibaba is likely to move ahead with a plan to list in Hong Kong despite its failure to get a rule exemption it was seeking from the securities regulator.

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