People are starting to figure this out.....
On April 13th at Grant's, Conference in NYC, Anne Stevenson-Yang, partner and co-founder of JCAP, and in my humble opinion, the foremost expert on what's really going on in China's economy today, gave a relatively detailed presentation to a room full of money managers, bankers and analysts, describing just how in the world, among other things, that a share of Alibaba is actually worth $36 rather than the $78 it's currently trading at. Author's Note: Although we usually think along the same lines, my price target is slightly lower than Anne's ("Strong Buy" at $7.00/share from my November of 2015 post), but if you know Anne, since she's lived in China for more than 20 years, is an expert in her field and the go-to authority for all that is China, she's occasionally a bit more optimistic than I am on some of these topics, thus the deviation in our valuations.
Anyway, it was a great presentation, so good as a matter of fact that the slides were posted anonymously by the Value Walk Staff. (Link below) Ironically, her slot on the agenda was right before Jamie Dimon, so she spent a good part of her talk calling Alibaba, JP Morgan's baby, butt-ugly. I would have found the schedule juxtaposition uncomfortable to say the least, but she apparently pulled it off, as always, without a hitch. Her main points re Alibaba were:
- As an ecommerce platform, it’s maxed out
- A terrible investor of shareholders’ money.
- Likely using investor capital to generate its own revenues.
- The Chinese e-commerce story is exceedingly unlikely.
http://www.valuewalk.com/2016/04/alibaba-group-holding-ltd-baba-jcap/
Anne also did a deep-dive into many of the things I've been discussing in this blog since it's inception a year and a half ago. Misleading GMV, "brushing", reciprocal purchases, dubious assets, constantly growing goodwill, outrageous share-based compensation expense and investments that look like loans to friends.
Anne also did a deep-dive into many of the things I've been discussing in this blog since it's inception a year and a half ago. Misleading GMV, "brushing", reciprocal purchases, dubious assets, constantly growing goodwill, outrageous share-based compensation expense and investments that look like loans to friends.
Through the magic of Al Gore's Internet, somehow, a few of the folks who attended the presentation found my blog and phone number and have been giving me the occasional call. Of course, I am always happy to share my thoughts on the future of Alibaba (or just about anything) with my readers. The discussions were informative, insightful and a welcome exchange of ideas. Anytime really smart people take the time out of their day to call me, I'm flattered. One particular money manager from L.A. was intrigued by Anne's presentation, as well as my blog..., yet clearly skeptical....as most investors are. It was as though he had just heard a rumor that the world might not actually be flat and he was grasping for hard evidence to rebut the suggestion. I call it the "how can this be possible?" reaction. It's understandable.
After discussing the impossible GMV; staggering Shareholder Compensation; an unbelievable, odd, $20 Billion acquisition spree; the 300 +/- "related" shell companies; and the lack of legal standing US Investors might have when this whole thing hits the crapper, I referred him to my favorite SEC filing of all time, which I've referenced several times over the last year and a half in this blog. This brief two page memo is the most (and perhaps only), accurate, direct, clear, un-equivocating, ethical document submitted to the SEC as a as part of, or since, the Alibaba IPO. I'm referring, of course, to the Jackie Reses, Yahoo! Chief Development Officer's amazing 9/16/14 Resignation Letter . (Text and Link below) I'm posting it again here since some of my newer readers (e.g. the L.A. Money Manager) may be unaware of its existence.
After discussing the impossible GMV; staggering Shareholder Compensation; an unbelievable, odd, $20 Billion acquisition spree; the 300 +/- "related" shell companies; and the lack of legal standing US Investors might have when this whole thing hits the crapper, I referred him to my favorite SEC filing of all time, which I've referenced several times over the last year and a half in this blog. This brief two page memo is the most (and perhaps only), accurate, direct, clear, un-equivocating, ethical document submitted to the SEC as a as part of, or since, the Alibaba IPO. I'm referring, of course, to the Jackie Reses, Yahoo! Chief Development Officer's amazing 9/16/14 Resignation Letter . (Text and Link below) I'm posting it again here since some of my newer readers (e.g. the L.A. Money Manager) may be unaware of its existence.
Text of Jackie Reses' Resignation Letter from the Alibaba Board of Directors - 9/16/14 - just prior to the IPO:
http://www.sec.gov/Archives/edgar/data/1577552/000000000014048770/filename1.pdf
I, Jacqueline D. Reses, am writing to inform you that I hereby resign as director of the company effective immediately prior to the effectiveness of the Company's registration statement on Form F1 and that I will not be responsible for any part of such registration statement.
Text of the Skadden Arps Cover Letter filed with the SEC along with Jackie's Resignation Letter.
Ladies and Gentlemen: We represent Yahoo Inc. ("Yahoo!"). Yahoo!'s Chief Development Officer, Ms. Jacqueline D. Reses, was previously a member of the board of directors of Alibaba Group Holding Limited ("Alibaba"). Enclosed please find a letter of resignation from Ms. Reses that has been delivered to Alibaba informing it that she has resigned as a member of the board of directors effective immediately prior to the effectiveness of the Alibaba's registration statement on Form F-1 and that Ms. Reses will not be responsible for any part of such registration statement.
This letter is being furnished to the Securities and Exchange Commission pursuant to Section 11(b) of the Securities Act of 1933, as amended, on behalf of Ms. Reses to disclaim any responsibility by Ms. Reses for any part of Alibaba's registration statement filed on Form F-1 (including any amendments thereto). Yahoo! can be reached by writing to Yahoo! Inc., 701 First Avenue, Sunnyvale, California, 94089, Attention. General Counsel or calling (408) 349-7853.
Note that the letter did not say Ms Reses is resigning to "Pursue other interests", "Spend more time with family", Hike the Appalachian Trail or to rededicate her life to Yahoo!, fly fishing or an Ashram somewhere. She said, and it was repeated twice in the Skadden Arps Cover Letter that she is resigning from the board and will "not be responsible" for any part of the Registration Statement, citing Section 11(b) of the Securities Act of 1933.
For those of you who are not experts in securities law, and I'd include myself in the non-expert group. Section 11(b) refers to defenses available against claimants for Securities Fraud. I've attached a nice Summary of Sec. 11 from the Washington Legal Foundation. What Jackie's letter is really saying, in layman's terms, as interpreted by my Dick Fuld Banker Speak Translator (BST) , is:
"I Jackie Reses am aware of material misstatements, and possible securities fraud in this IPO and I am refusing to be a part of it....so please don't sue me or send me to jail....I'm establishing my 11(b) defense by stepping down as a director and refusing to sign the Registration Statement."
Note in my prior post that Marissa Meyer, Jackie's boss at the time, and Maynard Webb, presumably had access to the same/similar information that prompted Jackie's resignation, or at least asked some questions about it upon her resignation, as described in my "Breaking News....Marissa Meyer to Resign" post, but Marissa and Maynard, for whatever reason, chose to stick it out. Perhaps because of the strict construction of Sec 11, they might not be considered part of the "defined class of defendants"? At this point, Yahoo! is simply a shareholder and Sec 11 would probably not apply to non-insider (as defined) shareholders. (Again, this will be for the lawyers to hash out). It's safe to say that Marissa and Maynard are probably aware, at least to some degree, of the Alibaba shenanigans, but are choosing to straddle the fence and collect a paycheck rather than come clean and step down. On the other hand, as unlikely as it might be, perhaps they are oblivious to the entire mess and aren't very wise to such things? Perhaps they don't understand Section 11(b) and are just dithering along with Starboard Funds trying to keep their jobs and "maximize shareholder value"? In any case, I doubt that you'll hear Marissa and Maynard making any joint statements or representations re: Alibaba's awesome financial condition/potential anytime soon.
Just thinking out loud here, but many of the underwriters and banks involved are US Citizens and may indeed be considered part of the "defined class of defendants" for the purposes of Sec. 11. All of you class action lawyers out there might want to make note of that.
Today's Thesis:
Question: Why would anyone resign from the board of directors of the biggest, most ballyhooed IPO of all time, forfeiting the presumed fortune, glory and wealth that most of us can only dream of, while citing Securities Fraud defenses in her resignation letter, on the very eve of the filing?
Hypothetical Answer: (To be tested over time) Because Ms Reses, at the advice of counsel, wanted to make absolutely sure that there was no possibility that she would ever end up in jail.
When I explained my reasoning to my new friend, the L.A. Money Manager, his response was:
"Holy.....(rhymes with duck)"
PS: I would like to personally invite Jackie to comment on my blog, and perhaps set the record straight as to what her thinking was at the time of the above referenced letter. Maybe it was all a mistake or a bad dream? If there's a better reason for the resignation letter than "the avoidance of jail time" that I might be unaware of, it would be enlightening and restore my faith in humanity to hear about it. If any of you journalists following my blog would like to reach out to her, feel free, it would make a great article, but I'm guessing that you'll get a "no comment" based on the advice of her counsel.
Grant's Interest Rate Observer - Conference Info
http://www.grantspub.com/conferences/index.cfm
Washington Legal Foundation - Securities Act of 1933 Sec. 11
http://www.wlf.org/upload/0106CLNSpehr.pdf
SEC - Securities Act of 1933 - Current (as Amended)
https://www.sec.gov/about/laws/sa33.pdf
Alibaba Final/Amended F1 - Signers Listed on the last few pages
http://www.sec.gov/Archives/edgar/data/1577552/000119312514341794/d709111df1a.htm