Alibaba weighs appeal against HK panel ruling that healthcare deal broke takeover code

Reuters, April 26, 2016

By Donny Kwok and Elzio Barreto in Hong Kong and John Ruwitch in Shanghai

Chinese e-commerce giant Alibaba Group Holding Ltd (BABA.N) said it's considering whether to launch an appeal against a Hong Kong regulator's finding that it breached takeover rules by buying an effective majority stake in a healthcare firm in 2014 without extending the offer to all of its shareholders.

Alibaba said late on Monday that the Hong Kong Takeovers and Mergers Panel, part of city's Securities and Futures Commission (SFC) watchdog, found it broke rules by arranging a deal with certain investors in CITIC 21CN, now known as Alibaba Health Information Technology Ltd (0241.HK), at beneficial terms not extended to other shareholders.

The SFC ruled that the breach of code in the 2014 investment meant an original waiver to a requirement to launch a general offer to all investors was invalidated, Alibaba said. But the e-commerce firm said the regulator issued a new waiver in view of the sharp rise in Alibaba Health stock since 2014, meaning Alibaba is not currently required to launch a full buyout.

Alibaba said in the statement it believes it fully complied with the takeover code regarding the investment, worth $170 million at the time, which gave it a 54 percent stake in the healthcare business after buying newly issued shares in the company.

Alibaba noted it was granted a waiver by the full offer requirement, given that the stock has soared more than six-fold since the 2014 offer.

Shares in Alibaba Health slid 9.6 percent in early trading on Tuesday, valuing the company at about $5.4 billion, while the benchmark Hang Seng index .HSI fell 0.8 percent.

An Alibaba spokesman said the firm is considering appealing against the SFC ruling but declined to elaborate further when contacted by Reuters on Tuesday.

"Alibaba Group believes that the determination by the panel will not affect Alibaba Health's operations and it intends that Alibaba Health will continue to be the flagship healthcare subsidiary of Alibaba Group," the e-commerce firm said in its statement.

In a separate statement issued late on Monday, Alibaba Health said the company continues to maintain its normal business operations.

(Reporting by Donny Kwok and Elzio Barreto in HONG KONG and John Ruwitch in SHANGHAI; Editing by Anne Marie Roantree and Kenneth Maxwell)