CASE STUDY

ALIBABA: OPEN SESAME

QUESTION 01: -
Briefly discuss dual class shares and how such a structure is similar to or differs from
Alibaba’s 28-man partnership system. Does Alibaba’s partnership system increase stakeholder
value?

ANSWER 01: -
Dual class ownership is when more than one class of shares are issued by a corporation,
each reflecting ownership, but one class has more voting rights than the others. This structure was
created by Alibaba so that they can have a 28 people group to stay in control, this was done by
giving them the right to nominate the majority of, board of directors, candidates. But the strategies
were to be decided by the company. This structure allowed some shareholders to have more voting
rights than the others which helped the founder of the company to maintain control and power
within the organization. This voting premium does not imply that the minority shareholders are
losing money. It does imply minority shareholder will have less control and power within the
organization.

QUESTION 02: -
Why might the shareholders, Yahoo! and Softbank, be willing to approve the 28-man
partnership structure?

ANSWER 02: -
The reason behind the acceptance of this 28-man partnership structure could be that Yahoo!
and Softbank believe that in this structure they have long term strategies that are more profitable
for the longer term instead of only short term. Furthermore, they allow to attract more growing
companies in need for more capital but don’t want to lose their control power. Moreover, it is more
transparency which is good to the stakeholder.

QUESTION 03: -
Are there some companies that are more suited for a dual class share structure and other
companies that are less suited for it? List some examples of companies that have ran into trouble as
a result of such models and some examples of companies that have been highly successful at
implementing dual class shares.

ANSWER 03: -
Majority companies are choosing dual class share structure and most of them are tech
companies such as GoPro, Google, Yelp, Alibaba, Snap, Dropbox, and LinkedIn. This structure is
suitable for the tech agency as it lets in tech start-ups to get entry to public capital with out

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CASE STUDY

sacrificing control. Also, the system makes it possible for investors to develop side by side with
innovators and high-growth businesses, taking advantages of the long term financial benefits from
the growth of these businesses. One of the most well-known instances of a dual share structure is
that of Google a subsidiary of Alphabet Inc. When the company released its initial public offering
(IPO) in 2004, it claimed market capitalization positions within the top 30 in the world.

QUESTION 04: -
Did HKEx do the right thing in rejecting Alibaba? Do you think that it is advisable for HKEx to
re-look at revising its rules on dual class share structures?

ANSWER 04: -
In our opinion, HKEx shouldn’t have rejected the offer of Alibaba considering their
performance in previous period, they also have a good business image and great service. Also, their
technology section was still growing, and they were both same markets. Moreover, they were
already a pronounced company and attracted well known Hong Kong investors. This proposal can be
reconsidered by adjusting some policies with requirements that they desire.

QUESTION 05: -
Singapore is amending its companies Act to allow public to issue dual class shares. This may
open the door for companies with dual class shares to list on SGX. Discuss whether it is advisable to
permit the listing of dual class share on companies in Singapore. If so, what safeguard, if any, would
you propose.

ANSWER 05: -
From our view, it is preferable to permit listing of dual class share companies in Singapore as
dual class share structure. So that it could help with more opportunities in collecting additional
public funding and promote SGX to become a place of business for high-tech, bio-pharmaceutical
and life science sectors. The suitable protection for the following case could be a maximum voting
gap of 10:1 between both share (multiple voting rights and ordinary). Furthermore, existing
companies shouldn’t be allowed to convert to a dual class share arrangement, as their holders didn’t
invest knowing the risk that could be involved in these structures.

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