Alibaba Case Questions

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Alibaba’s IPO Dilemma: Hong Kong or New York?
1. Describe dual-class share structure. Is Alibaba’s “partnership structure” different from dual-class share structure? Does “voting premium” mean that “minority” shareholders are losing money?
Dual-class share structure is a situation in which a company issues multiple categories of common stock and each category has different rights and privileges. For example an A class shareholder can have one votes for each share of stock and a B class shareholder can have ten votes per share of stock. This is usually a way of giving more control to certain groups of shareholders, particularly insiders and founders. Alibaba’s partnership structure is equivalent to a dual-class structure because the partners are the only ones who can control certain important decisions. The holders of partnership interests would have more decision making authority over many governance decisions in the operating subsidiaries of Alibaba; so the partnership structure achieves the same outcome as dual-share structure. A small group of insiders and/or founders are controlling important decisions. This does not mean the minority shareholders are losing money. In partnership structured companies, like those existing in healthcare within the US, operating subsidiaries cover all costs and distribute excess cash to control and minority shareholder alike. Unless specifically agreed to in the partnership agreement amongst all shareholders (majority and minority), economic benefits are usually distributed on a pro-rata ownership basis.
2. Why do NYSE and NASDAQ allow dual-class share structure while HKEx does not? If you were Charles Li, what would you do?

3. What are the pros and cons of listing in Hong Kong versus New York? If you were Jack Ma, where would you list? Under what conditions?
Hong Kong investors are more familiar with Chinese companies and academic research

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