Ali-Yahoo Relationship Woes

Relations between Alibaba and Yahoo have been receiving attention from the media lately. There have been a few examples of sharp words tossed around including from the marketing head of Taobao who suggested that Yahoo and its CEO Carol Bartz should focus on their own flagging prospects instead of yapping on about their stake in the Alibaba Group. Separately, Alibaba.com CEO, David Wei compared Yahoo to an ailing grandfather.

There is, however, good reason for the tension. As part of the terms of its 2005 US$1 billion investment in Alibaba, Yahoo will soon have the right to name an additional director to the board of the Alibaba Group. The Ali Group currently has a four seat board of directors: two from Ali’s management, one from Softbank and one from Yahoo (co-founder Jerry Yang).

After the 25^th of October, Carol Bartz could name herself to the Alibaba Group board. Bartz is known for her aggressive, direct management style and salty language. It is fair to say she would not be a natural fit on the Ali board.

Alibaba’s senior executives have not been shy about saying: 1) they do not want Bartz; and 2) that Yahoo delivers no strategic value to them. The two companies have been on divergent paths for some time. Yahoo’s search business (which originally attracted Alibaba) has been weakening. At the same time, Alibaba has gone from strength to strength evolving into an e-commerce giant in one of the world’s fastest growing economies.

Even with the second board seat, Yahoo will not be able to gain control of Alibaba, but Yahoo could agitate for changes in its strategic direction. For example, Yahoo could use its positions on the board to push for IPO’s Ali subsidiaries such as AliPay or Taobao. That would give Yahoo an extremely attractive partial exit and return on its original investment.

The companies were reportedly in high-level discussions in the first half of 2010 as Alibaba looked to negotiate Yahoo out of the picture, but the two sides could not agree on terms.

As 25^th October approaches, the Ali Group no doubt does not relish the thought of being told what to do by the “ailing grandfather” of the first dotcom boom. Complicating matters further, it is highly unlikely that the Chinese authorities would be pleased to see a foreign company such as Yahoo gain any kind of control over the largest e-commerce platform in China. That would make government approval for an IPO of Ali Group subsidiaries challenging at best.

For that reason alone, (according the FT), Ali has turned to Jerry Yang to convince Bartz not to name another director. For Ali, this is going be an irritating, distracting board room tussle that is unlikely to be resolved quickly or cleanly.

Ali Everything

Seriously, is there anything Alibaba won't jump into?

Check out this sampling from one Google Alert:

China's Internet King shares his stage with Schwarzenegger at the Hangzhou-based company's Alifest. The two discuss Alibaba's American market ambitions.

The day before eBay's John Donahoe came with hat in hand and conceded defeat in China (just about five years too late). John wonders if it is not too much trouble if Ali might consider becoming eBay's partner.

Alibaba earmarks US$3 million to help U.S. students (yes, U.S. students) to create e-commerce jobs and businesses.

Chinese auto giant, Geely is planning to sell cars in China... on Alibaba platforms.

And while they are at it, Ali seems to be tiring of the deadwood that is Yahoo. Alibaba.com CEO, David Wei went on Bloomberg and stated rather directly: “Why do we need a financial investor with no business synergy or technology?”

Good luck getting rid of Yahoo, they are holding on for dear life hoping that Alipay, Taobao and other Alibaba Group IPOs will save them from themselves.

Straight from The Source

Suzanne Wang, VP of Corporate Development and Investments at Global Sources provides a response to our previous post:

"We wish to clarify that, contrary to the speculations in your article [previous blog posting], Global Sources currently has no intention of "privatising the company", nor was that the rationale for our recent tender offer (or for the previous one in 2008).

We embarked on our tender offer because, after evaluating our cash position, our Board of Directors felt that it would provide a good opportunity for our shareholders to participate in a return of investment, while also allowing us to maintain a cash balance that would continue to enable us to evaluate future acquisitions or other potential investment opportunities."

Well, that is pretty much an unequivocal answer.

Global Sources: Closing the kimono?

It is just some idle speculation on our part, but we are wondering if Global Sources is mulling privatising the company – perhaps in the long-term. Global Sources has completed two tender offers in the past 20 months. The most recent one in July resulted in the company buying back some 11 million shares at US$9.00. In November 2008, the company purchased 6.25 million shares from investors at US$8.00 per share. That is a purchase of 17.3 million shares at a cost of US$150 million.

Depending on the source, the figures vary regarding the number of GSOL shares held by insiders and by institutions, but it seems that the NASDAQ-listed company has 44.65 million shares outstanding. Of those, 65.01% are held by insiders and another 32.6% are held by institutions. That leaves 2.39% as free float which is typically defined as the shares not held by insiders and large (usually institutional) shareholders. Depending on the source, the free float figure range from 2+% to about 7.5%. So that translates into a free float of anywhere from 1.1 million shares to about 3.4 million shares.

Companies pursue buybacks and tender offers for a variety of reasons and it does not necessarily indicate a path to privatising, but Global Sources really hasn’t benefited much from its listing and it takes a considerable amount of time and resources to remain a NASDAQ-listed company.

Ten years ago, Global Sources listed on NASDAQ through a reverse listing – raising no capital in the process. The company generally has no need to use the listing to raise capital, it has no long-term debt, trades at a lower valuation compared to its peers and has not needed to use the shares for any significant M&A activity.

As a result, it seems a fair question to ask why the company needs to be listed at all. If Merle Hinrichs ever decided to sell the company (improbable at best) he might do better to close the kimono.

Alibaba's latest acquisition heightens focus on U.S. market

Alibaba.com has acquired Auctiva, a U.S.-based auction management software vendor which has worked closely with eBay in the past. Auctiva provides a variety of tools which allow users to post, market and manage their online auction listings.

This acquisition follows Alibaba's purchase of Vendio, another U.S. firm, in June. Vendio also provides online selling tools to small- and medium-sized enterprises (SMEs). Alibaba stated that the Vendio and Auctiva deals are expected to bring 250,000 potential new customers to the company.The deal is part of Alibaba's AliExpress initiative - a wholesale e-commerce platform which targets smaller orders.

This deal once again reinforces the fact that Alibaba and Global Sources are competing less and less as differing corporate strategies leave the two firms with shrinking overlap. Global Sources is focused on big buyer sourcing and Alibaba is (in their own words) building an online ecosystem designed to serve SMEs.

With its increasing U.S.-focus and portfolio of online selling platforms (Alibaba.com, Taobao, Alipay, Vendio and Auctiva) Alibaba looks like a far a greater threat eBay than to Global Sources. For Hong Kong-based Global Sources, the biggest ongoing challenge stemming from Alibaba will be to effectively explain to its potential clients (primarily Asian manufacturers) the reason for the premium price placed on marketing on Global Sources' platform vs. Alibaba.com.

Global Sources Q2 revenues up 8%

Global Sources just released its Q2 results. Revenues in the second quarter were up 8% compared to Q2 2009 and the company's chairman, Merle Hinrichs expects revenues to grow 13%-15% in the second half of 2010. Second quarter revenues were US$58.4 million vs. US$54.2 million in 2009.

Online revenues were mostly flat (US$22.4 million vs. US$22.1 million last year). Exhibition related revenues were US$27.4 million in the quarter - up from US$24 million.

GAAP net income was US$7.3 million - a 43% rise over the US$5.1 million recorded in 2009.

First half revenues were US$92.4 million, a modest increase over the US$89 million in the first half of 2009. First half net income jumped from US$6.3 million to US$9.8 million.

The company expects full year 2010 revenues to be approximately US$190 million.

Global Sources' recently completed a US$100 million tender offer buying back some 11 million shares at US$9.00. The NASDAQ-listed shares closed at US$7.41 yesterday. Cash and cash equivalents were US$174 million at the end of Q2, but US$100 million of that figure has subsequently been returned to shareholders through the tender offer.

Hong Kong-listed Alibaba.com announced its Q2 results last week with an astonishing 49% increase in revenues (US$201 million) and a 46% increase in net income (US$53 million).

Alibaba forecasts drop in Chinese export growth

In the midst of a week-long tour of the U.K., Alibaba.com CEO David Wei has made some interesting statements. The online B2B giant is forecasting a significant slowdown of China's export growth in the second half of this year. With some 47 million registered users Alibaba.com is actually in quite a strong position to monitor the demand for products from China. The good news is that despite a significant forecast drop, the company still expects double digit export growth in 2010.

"Chief Executive David Wei said international inquiries were down for the Chinese manufacturers using Alibaba and he expected export growth to fall from 30% to 10% by the end of this year."

Wei also revealed that Alibaba shares its data with the Chinese government which is not surprising, but interesting to see this fact stated so explicitly:

"Alibaba monitors the transactions taking place among its business users and sends monthly reports to the Chinese government about international demand for Chinese products.

Alibaba.com as 47 million registered users - of which 12 million are based outside of China. Its online payment platform, Alipay, has 330 million registered users. Monitoring activity on those two platforms alone would give Alibaba solid insights into the state of the Chinese export machine.

No doubt Beijing will soon be asking Alibaba what should be done about the yuan revaluation.

Global Sources goes to Miami

Global Sources has quietly posted, without any press releases, a new set of exhibitions in Miami on its website.

The exhibition will cover a wide range of product categories including: gifts & premiums, home products, fashion accessories, garments & textiles, and baby & children's products.

The dates listed for these new China Sourcing Fairs are 11-13 July 2011 at the Miami Beach Convention Centre - although the exhibition is not yet listed on the MBCC's website. The venue has about 45,000 sqm of exhibition space.

This would be Global Sources' first China Sourcing Fair held in the U.S. In the past year, Global Sources has announced new editions of these exhibitions in Singapore and Johannesburg.

Reed Exhibitions on the block... maybe

The Sunday Times is reporting that at least one private equity group is sniffing around Reed Exhibitions (RX)- owned by U.K.-listed Reed Elsevier (RE). The company's CEO Erik Engstrom claims that RE is just not interested, but with Reed Elsevier sitting on a £3.9 billion mountain of debt, it must be tempting to see what the market would offer.

According to The Sunday Times, Texas-based private equity firm, TPG, is interested and has valued RX at £1.5 billion. With RX's underlying profit of £150 million, that would seem a reasonable valuation. RX hosts some 470 events annually and employs over 2,700. In 2008, RX generated revenues of £707 million - about 13% of RE's £5.33 billion total revenues.

RE's half year results are due to be released on 29th July. Weak results just might push RE's management to think a little more seriously about a potential cash influx of £1.5 billion.

Computex rolls on

Computex Taipei wrapped up this past weekend and posted a 20% increase in visitors according the Taiwan External Trade Development Council (TAITRA). 120,000 visitors passed through the gates including over 35,000 international buyers. The top five sources of overseas visitors were the U.S., Japan, China, Hong Kong and South Korea. TAITRA also reported that buyers from emerging markets also increased significantly - especially visitors from Russia, India and Brazil.

The Economist recently argued that Computex is now the most important IT exhibition in the world, although Germany's CeBIT is still the largest. The Economist noted that 50% of all chips, 70% of computer displays and 90% of all portable computers are made in Taiwan.

Now in its 30th year, Computex grew its visitors by 20% and its total booth number by 8%. The mammoth exhibition featured nearly 4,900 booths this year hosted at multiple venues including: Nangang Exhibition Hall, Taipei International Convention Centre (TICC), Taipei World Trade Centre (TWTC) Halls 1 and 3.

TAITRA is already clamouring for more space and Computex is showing now sign of slowing down. The event's growth prospects continue to look strong as better ties between Taiwan and mainland China are rapidly pushing up the number of exhibitors and visitors from China.