Significantly this comes in the wake of the U.S. SEC investigating the sales data of its annual Singles’ Day sale.
Softbank Group Corp has said it will sell at least $7.9 billion shares of the Alibaba Group Holding Ltd so as to raise more funds to reduce its debt profile.
This transaction by the Japanese telecommunication and internet giant marks the first sale by its biggest shareholders since Softbank began investing into the company in 2000. After the sale Softbank’s stake in Alibaba will fall to around 28% from 32.2% in March.
Both companies have however said, despite the sale, their strategic partnership will remain intact. Jack Ma, Alibba’s Executive Chairman will remain in Softbank’s board while Masayoshi Son, Softbank’s chairman and CEO, will retain his seat in Softbank as a director at Alibaba.
Shares of Alibaba fell by 2.8% in extended trading on Tuesday.
This deal involves Softbank selling shares worth $2 billion to Alibaba, a $500 million sale of shares to an unidentified sovereign wealth fund, the sale of shares worth $400 million to the Alibaba Partnership, and lastly an offering by a new Softbank-controlled trust of $5 billion to $6 billion in securities that in three year’s time will be converted into Alibaba’s stock.
In a note to investors, Scott Devitt, an analysts at Stifel wrote that he still will maintain a “buy” rating for Alibaba, even after Softbank’s sale.
“We do not view this as a shift in confidence from a major investor. In fact, it could remove an overhang of expectation of such an event,” wrote Devitt.
Significantly, this announcement by Softbank comes in the wake of the U.S. Securities and Exchange Commission investigating the accounting practices of its logistics firm, specifically its operating data related to its annual “Singles’ Day” sale.
Softbank has portrayed the move as forming part of its “transformational strategy” which it hopes will increase its own liquidity and thus “enable flexible and prudent financial management.” Incidentally, Softbank is the owner of U.S. telecommunication giant Sprint Corp.
In a related transaction, Softbank has simultaneously entered into an agreement which essentially locks its shareholdings of Alibaba for a period of six months. During these six months, it will not be able to transfer any shares it holds of Alibaba.
Incidentally, Yahoo Inc has also been pondering on how to dispose of the 15% stake it holds in Alibaba. This potential sale comes with a major tax bill as a deterrent. According to sources who are familiar with the matter at hand, Alibaba is not interested in buying the stake from Yahoo at a high price.
A spokeswoman for Alibaba spokeswoman declined to comment on the Yahoo related development. Yahoo did not respond to a request for comments.
According to the terms of the offerings, Deutsche Bank and Morgan Stanley will manage the sale of the $5 billion in securities.
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