A cleaner waters flowers below a logo of Alibaba at the company’s headquarters on the outskirts of Hangzhou, Zhejiang province. The Chinese firm in its final doling out of fees to underwriters for their work on the offering rewarded Credit Suisse and Morgan Stanley the biggest share of a $50mn incentive pool.
Dow Jones/Beijing
In the historic initial public offering of Alibaba Group Holding last week, some banks were more equal than others.
In its final doling out of fees to underwriters for their work on the offering, Alibaba rewarded Credit Suisse Group and Morgan Stanley the biggest share of a $50mn incentive pool, people familiar with the matter said. In contrast, the Chinese e-commerce company divided the bulk of the main $250mn fee pool in equal amounts among the top five banks on the IPO.
Credit Suisse and Morgan Stanley each received 22.5% of the incentive pool, or $11.25mn, the people said. That means each bank got $48.75mn in total for their work on the deal when including their share of the base-fee pool.
Goldman Sachs Group, JP Morgan Chase & Co and Deutsche Bank AG each got smaller cuts of the incentive pool, the people said, as did Citigroup, the top underwriter outside the group of five. How much in incentive fees each of those banks got paid wasn’t immediately clear.
The tiered incentive fees is a final twist on Alibaba’s unusual approach to the $25bn offering, the largest IPO ever. Alibaba appointed a group of six banks to jointly run the offering, then handed out key jobs to each. That is in contrast to the typical practice of giving one or two underwriters lead roles and a lion’s share of the fees. The company added the $50mn incentive on top of the standard fee, though until now it wasn’t clear how it would be divvied up.
Payment of the incentive fees was triggered in part by the strong performance of the shares, which are up 32% since they were sold on September 18 for $68 apiece, according to people familiar with the deal. The share price gains give the company a market value of roughly $220bn.
Alibaba shares rose 1.1% to $89.91 midday on Friday on the New York Stock Exchange.
The total fee pool for Alibaba’s underwriters now stands at 1.2% of the offering, topping the 1.1% that Facebook paid on its $16bn landmark IPO in 2012.
Each of the five main banks got roughly 15% of the base-fee pool, leaving a total of 25% to be split between Citigroup and 29 lower-tier underwriters, which include Wells Fargo & Co and Evercore Partners. The 29 underwriters don’t share in the incentive-fee pie.
The banks’ incentive fees in part reflect their differing roles-and the costs they incurred-working on the offering, according to people familiar with the deal.
Credit Suisse and Morgan Stanley started the early IPO preparation work for the company last year, and worked on the materials used during the global “roadshow” with potential investors in September, the people said.
The two banks also split the job of overseeing the “lock-up” agreement that prevents existing shareholders from selling more stock immediately after the IPO. Credit Suisse further handled the sale of shares to employees and other people close to the company, while Morgan Stanley was in charge of delivering shares and receiving payment from the offering.
Goldman oversaw the opening of the stock for trading and was tasked with stepping into the market to support the shares if they had fallen-which ended up being unnecessary given the strong performance.
JP Morgan, meanwhile, was recognised by the company for leading roadshow meetings with the biggest mutual fund firms in Boston and Baltimore, whom Alibaba especially wanted to court as core shareholders, people familiar with the deal said. Despite touring the world on its roadshow, more than 80% of Alibaba’s shares that were sold to institutions went to US firms, people familiar with the matter have said.
Deutsche Bank led some meetings with investors on the west coast of the US, where Alibaba will likely be an active investor in startups and aims to expand its presence, the people said.
Citigroup hosted the final nine-hour marathon meeting in New York last week to determine which investors would get stock. Citigroup also was designated the manager of the depository-receipt programme that enables US investors to buy shares in a foreign company.
In addition, Alibaba paid Rothschild, which acted as an independent adviser to the company, $9mn in fees, according to the filing, known as a prospectus.