There has been speculation in the last few weeks when the Alibaba Group would instigate the first round of IPO talks with banks and lawyers. But what is certain, Barclays excluded from Alibaba’s IPO; they will not be included in the underwriting that is required before a business can be floated on the stock market.
This is shocking, because Barclays is a recognized global bank for their underwriting properties. Barclays have angered one of the companies that are now aligned with Alibaba and they have personally asked for Barclays to be excluded from all proceedings, as a way to punish them. It might seem a petty action, but it could mean millions of dollars in potential earnings will be lost for the bank.
Tip: Two weeks ago TechShares published a company profile on the Alibaba Group
The company is starting their preliminary talks with the different banks that have been chosen, together with their lawyers. This meeting is to take place on 25th March, but Barclays is not going to be involved in any of the meetings for underwriters regarding the deal.
With the current flotation that is being proposed, a 12 percent stake in the company is expected to be offered. The company is currently being valued at $153 billion; therefore 12 % of this could mean that there are potentially $18.4 billion shares, which are going to be floated on the stock market.
When Facebook was first floated on the stock market, nearly 2 years ago, they managed to raise enough money for the underwriters to make a 1.1 percent profit on their investment. If the Alibaba Group has similar success then the amount of money that the underwriters stand to make is estimated at $200 million.
This is a large amount of money that any business would be pleased to make. But as with all businesses, there are decisions that you have to make that, later on can affect the potential business in the future. This is similar to what has happened here, they have made a decision to back a company and not another; they have to make sure they don’t have conflicting interests and this can lead to a company not being chosen, because the bank feels that the company they pick has the potential to make them more money.
In the case with Alibaba this has backfired; because they chose a different company, they have now been excluded from what could have been a very lucrative deal.
Barclay’s haven’t taken a back seat in all this; they have been actively looking at the other options open to them. They have been looking at the options that are still in the areas that Alibaba deals in, and they have supported some of Alibaba’s rivals in their business ventures.
This might seem like they are just looking at the other companies and trying to compete. But in essence, this will have allowed a great number of companies that might have struggled to find a banking institute, with the great reputation that you will get with Barclays. This has opened up the possibilities that might have not been possible if Barclays had been selected for the underwriting of Alibaba.
Conflicting interest in companies can be difficult and that can open up a lot of problems. A large company could still have potential in a market but if the larger banks are all tied to one company, then the underwriting possibilities and other functions that the bank can offer might not be available. This can mean that the competition can often be left with the lesser offers of support.
With Barclays being banned from any talks with Alibaba, it means that they are then able to offer the support and the finance to many companies that they might not have considered in the past.
This is great news for the other companies and could mean a great return for their own investments too. Often, decisions in business can have a consequence and learning to live with these and to make the most of a situation that is offered is going to make sure that you continue to grow. Taking a situation in business on this level to a personal rejection could be seen as foolish, or the best decision they have made.
Barclays might have lost their position and the option to make money with Alibaba but they haven’t sat back with their decision; they have taken the decision, moved forward and continued to lead and grow into a stronger company.
What one company chooses can affect the potential of another company and this is nothing new; it is part of the business world and allows businesses to continue to grow and compete.