Tag Archives: News event

Airbnb

Airbnb valued at $10 Billion

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Earning a piece of travelers’ wallets is big business, and Airbnb is proving just how lucrative it can be. The company is close to closing funding valuing it at more than $10 billion.

Michael J. de la Merced had this story for the New York Times:

Airbnb is close to joining a rarefied group of start-ups: the 11-digit valuation club.

The couch-surfing company is close to raising more than $400 million in a new round of financing, a person briefed on the matter said on Thursday. The fund-raising effort would value the six-year-old Airbnb at more than $10 billion.

Leading the round is TPG, which has already taken stakes in other Silicon Valley darlings like the car-ride service Uber.

Airbnb’s fund-raising round is the latest sign of exuberance in the technology world, as the new generation of start-ups fetches eye-popping valuations. Companies like the online storage provider Dropbox have been appraised at about $10 billion, while Facebook – itself worth more than $172 billion – bought the messaging application WhatsApp for $16 billion last month.

The Financial Times story by Tim Bradshaw added this background about the company’s roots and what they plan to do with the cash:

Airbnb’s rise has been meteoric. Founded in 2008 by roommates who rented out beds to help pay for their San Francisco loft, the company said at the end of last year that it has hosted more than 11m guests in 34,000 cities around the world.

As well as joining that elite group of private technology companies in the US to attain an 11-figure valuation, Airbnb is the latest to seek private equity funding thta will allow it to delay an initial public offering. The deal was earlier reported by the Wall Street Journal.

The company is raising more than $400m to help expand its peer-to-peer home renting marketplace into a broader offering of “hospitality”, including transport or cleaning services, said co-founder Brian Chesky, now chief executive.

TPG, the private equity group that also led sharing-economy rival Uber’s fundraising last year, will lead the Airbnb investment, according to sources close to the discussions. Airbnb declined to comment and TPG did not immediately respond to a request for comment.

The Wall Street Journal pointed out in an article by Evelyn M. Rusli and Douglas MacMillan that regulators have looked into the business model:

The service has become a cheap alternative to hotels for millions of tourists, a source of income for homeowners and a target for regulators wary about safety, oversight and tax collections.

Last October, New York Attorney General Eric Schneiderman subpoenaed Airbnb for information on its 15,000 hosts in the state, to determine if any are violating a 2010 state law that prohibits renters from subletting their homes for less than 30 days if they’re not present. The company is contesting the order in court. Hotel operators argue that the rentals unfairly skirt lodging taxes.

Airbnb is benefiting from soaring investor interest in mobile and Internet-based business models, which is propelling a wave of initial public offerings and eye-popping valuations for private companies. Facebook Inc. FB -0.12% recently agreed to acquire closely held text-messaging service WhatsApp for $19 billion.

In the past 12 months, at least 21 companies have raised new funds that valued them at $1 billion or more. At the top of that list, online-storage provider Dropbox Inc. and Chinese mobile-phone maker Xiaomi notched $10 billion valuations, while data-mining specialist Palantir Technologies Inc. was valued at $9 billion. Uber Inc., an on-demand car service, is valued at $3.8 billion, following an investment last year led by Google Ventures, with TPG participating.

Airbnb and Uber are part of the so-called sharing economy, in which people offer resources or services, such as cars, spare bedrooms, or extra time, to others for a fee. The companies need investments to expand into new regions, staff international offices and ward off competitors. One of Airbnb’s largest competitors is vacation-rental service HomeAway Inc., a public company valued at $3.9 billion.

Ryan Lawler wrote for TechCrunch that much of Airbnb’s growth is coming from Europe, which bodes well for tapping various markets:

With that report as a backdrop, Airbnb has shared some stats this morning that show its guests increasingly are traveling to, from, or in-between nations in Europe. In a blog post today, the company said that 50 percent of its guests over the last year were from Europe, and that number is only expected to grow over time.

Airbnb said that more than a million guests each from the U.K. and France have booked stays through its platform. Meanwhile, more than a million guests have stayed at places listed on Airbnb in both Italy and Spain. It’s likely that those guests and stays overlapped quite a bit — according to the company, more than 80 percent of European guests staying with Airbnb traveled to other destinations within Europe.

The growth comes as Airbnb has been investing in the continent over recent years — in 2012, the company opened offices in London, Paris, Barcelona, and Milan, among other European cities.

Airbnb has had a particularly international audience for a while, with three-quarters of all stays involving a stay by an international guest or a guest staying in an international listing. But this announcement marks a serious shift in the makeup of Airbnb guests. Back in 2011, about half of all guests were from the U.S., but that’s dropped to below 30 percent.

Airbnb is smartly raising money while the notion of the “sharing economy” is hot and people are flocking to its site. Many travelers are searching for a more personalized or authentic experience than hotels and finding it by staying with others. Some are using the site to pay the rent. No matter the reason, it is obviously filling a gap. But is the gap $10 billion wide? Only time will tell.

TBN

Talking Biz News Today — March 20, 2014

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The Wall Street Journal

Airbnb in advanced talks to raise funding at a $10 billion valuation, by Evelyn M. Rusli and Douglas MacMillan
Sony to add original TV shows for PlayStation, by Amol Sharma

The New York Times

Bloomberg should have rethought articles on China, chairman says, by Neil Gough
U.S. and Russia swap sanctions tit for tat over Crimean crisis, by Mark Landler

Ad Age

Got $1 million? Pinterest would like to sell you an ad, by Cotton Delo

CNNMoney

Yellen’s big mistake, by Paul R. La Monica

Bloomberg

Sales of existing homes in U.S. fall to lowest since 2012, by Shobhana Chandra

Fortune

At financial news sites, stock promoters make inroads, by Stephen Gandel

Today in business journalism

LA Times names Yoshino its new biz editor
Tantillo named ME for Reuters.com
Dolan, parent of business weeklies, filing for bankruptcy court protection
McGovern, founder of ComputerWorld, dies at 76
Frankie Flack: Lies, damn lies, statistics and business journalism

This date in business journalism history

2008: FT to relaunch its Wealth magazine
2009: Career show coming to Fox Business

Business journalism birthdays

March 20: David Weidner of MarketWatch.com

 

“We saw an opportunity to serve our readers in the region even better with both our journalists around the world and an increased focus in India,” says Kevin J. Delaney, co-founder and editor-in-chief of Quartz. “It’s a mobile-first region at a critical moment in its economic history—and we’re excited to deepen the coverage available to readers on their smartphones and tablets especially.”

federal-reserve-400

Yellen makes Federal Reserve debut

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Janet Yellen’s debut didn’t say anything out of the ordinary, but apparently, investors didn’t care for her commentary.

The Wall Street Journal story by Jon Hilsenrath and Victoria McGrane led with investor reaction to Yellen’s comments around when the Federal Reserve might start raising interest rates:

Investors bristled after Janet Yellen emerged from her first meeting as Federal Reserve chairwoman with some unsettling signals about the central bank’s outlook for short-term interest rates.

The Fed intends to keep short-term rates near zero into next year, but investors sniffed out signs that rate increases might come a bit sooner and be a touch more aggressive than expected. Even though the Fed’s official policy statement sought to give assurances of continued low rates far into the future and Ms. Yellen played down rate-increase expectations, stock prices fell and longer-term rates on Treasury bonds moved up.

In a press conference after the meeting, Ms. Yellen suggested that interest-rate increases might come about six months after the bond-buying program ends—a conclusion that could come this fall. She offered that projection with many caveats, but some investors took it as a sign that the Fed could start raising interest rates sooner than expected.

“This could have been a rookie gaffe on Yellen’s part,” Paul Edelstein, director of financial economists at IHS Global Insight, said in a note to clients. “This was, after all, her first press conference.”

In futures markets, prices indicated investors’ expected rate for the Fed’s benchmark federal funds rate for June 2015 moved up from 0.28% before the Fed’s meeting to 0.36% after the meeting.

Writing for Bloomberg, Craig Torres, Steve Matthews and Michelle Jamrisko also led with investor reaction:

Janet Yellen said the Federal Reserve wasn’t altering policy when it overhauled the way it signals changes in borrowing costs. Investors didn’t buy it.

In her first press conference as Fed chair, Yellen emphasized that dropping a 6.5 percent unemployment threshold for considering an interest-rate increase “does not indicate any change in the committee’s policy intentions.”

Rather than paying heed to Yellen’s assertion, investors seized on an increase in Fed officials’ own interest-rate forecasts and Yellen’s comment that that borrowing costs could start rising “around six months” after it stops buying bonds. Yields on two-year Treasury notes climbed as much as 10 basis points, the most since June 2011.

The market reaction highlights the perils faced by central bankers when they retreat to language investors consider vague after setting precise numerical markers for changes in policy. Lacking specific guidance in the Fed’s policy statement, investors swung toward the next best thing: Fed officials’ own forecasts for the benchmark federal funds rate.

Binyamin Appelbaums story in the New York Times led with the announcement and added this background about the statement:

The latest statement — the longest one the committee has ever published — was careful to say that the change in guidance was not intended to alter the possible timing of a rate increase. Instead, Ms. Yellen said that new measuring sticks were necessary because the unemployment rate had fallen more quickly than expected, while other economic indicators, like inflation, remained weak.

“The purpose of this change is simply to provide more information than we have in the past, even though it is qualitative information, as the unemployment rate declines below 6.5 percent,” Ms. Yellen said.

But the Fed also released a separate set of economic forecasts showing that officials had raised their expectations for the level of their benchmark rate at the end of 2015 to 1 percent from 0.75 percent.

The Washington Post story by Yian Q. Mui led with the notion that the Fed way paving the way to increase rates:

The Federal Reserve began laying the groundwork Wednesday for the first increase in interest rates since the Great Recession upended the economy.

The nation’s central bank said it will consider a broad swath of indicators to determine the moment of liftoff, including job market data, inflation expectations and financial developments. The official statement was a retreat from the blanket assurances that rates would remain untouched, which have dominated the Fed’s message for the past five years. Instead, the debate has shifted to how much longer the Fed should wait before pulling the trigger.

The Federal Reserve began laying the groundwork Wednesday for the first increase in interest rates since the Great Recession upended the economy.

The nation’s central bank said it will consider a broad swath of indicators to determine the moment of liftoff, including job market data, inflation expectations and financial developments. The official statement was a retreat from the blanket assurances that rates would remain untouched, which have dominated the Fed’s message for the past five years. Instead, the debate has shifted to how much longer the Fed should wait before pulling the trigger.

No matter how the story was framed, it was a stumble for Yellen. Much of the earlier coverage anticipated that she would have an easy debut, especially since the Fed has clearly projected its moves to the markets. The fact she rattled the markets with her post comments shows that she has some work to do, despite her years of experience and knowledge of the markets.

TBN

Talking Biz News Today — March 19, 2014

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Some of Wednesday’s top stories:

The Wall Street Journal

Toyota set to pay $1.2 billion in U.S. probe, by Charles Levinson

The New York Times

Fed cuts bond purchases by another $10 billion, as expected, by Binyamin Appelbaum
Insider case nets employees at top law firm and bank, by Ben Protess

Reuters

FAA review says Boeing 787 Dreamliner is safe, by Eric Beech

Bloomberg

JPMorgan agrees to sell commodities unit for $3.5 billion, by Andy Hoffman and Hugh Son
Hershey investors suing over child labor can pursue files, by Jef Feeley

And in local news:

The Daily Tar Heel

Students weigh experiences, finances in unpaid internships, by Katie Hjerpe

Today in business journalism

Re/code founders Mossberg, Swisher to receive award
Why Seeking Alpha accepts anonymous posts
Bloomberg Media CEO: We will add digital products, invest in print and radio
Reuters hires energy markets editor, names deputy commodities editor
Rumors, accuracy and the M&A beat

This date in business journalism history

2010: Bloomberg wins FOI case against Fed
2013: Biz journalism prof files suit against Columbia

Rod Meloni

TV business editor livid at GM’s tactics

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Rod Meloni, Local 4 business editor in Detroit, wrote Tuesday about General Motors Co. has attempted to control coverage of its growing recall by only inviting print media to a news conference.

Meloni writes, “GM invited only 10 print reporters to the GM Ren Cen headquarters for a press briefing with Mary Barra. Tightly-controlled, hand-picked reporters were there. The usual gang that could be counted on to ask questions that would not shock or otherwise fluster the new CEO. CNBC’s Phil LeBeau was invited to listen in on the phone as Mary Barra talked about the biggest crisis at GM since its bankruptcy. It was nut cutting time at the Ren Cen and instead of having the nation’s broadcasters, or the local broadcasters who talk with their shareholders and employees every night, they chose to just go with the arm’s length print medium.

“In thinking back to the GM bankruptcy, CEO Rick Wagoner, as beleaguered as he was, would stand up and answer every question at press conferences that included every manner of reporter and camera. GM was in crisis, it was looking for a handout that it eventually received from the federal government and Wagoner took the public beating he so richly deserved. He was the multi-millionaire executive, his desk was where the buck stopped and he knew he had no choice but to be held accountable. That’s how it is supposed to work. It was unpleasant, but Wagoner stood up before shareholders, employees and the nation to answer the toughest questions in the full light of day. No coddling there.

“Fast forward five years and the new media handlers around Mary Barra believe she is too delicate a flower for that. In her honeymoon period as the top executive, proud to acknowledge her salary will eclipse $12 million this year, a woman who is highly touted as a GM lifer who has been through and seen a lot is somehow and for inexplicable reasons being held back from the true test of her leadership: true accountability in the sunshine. They and GM’s attorneys obviously believe she is either too new or inexperienced to answer questions on camera with all those pesky bright lights. The tightly controlled and amateur looking video of Mary Barra GM put out yesterday appears the most the management and media relations seem to be able to live with. Ladies and gentlemen the building is burning! What in the world is going on here?”

Read more here.

High-frequency-trading

NY takes aim at high frequency traders

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The opaque world of high frequency trading is coming under increasing scrutiny from regulators as the New York Attorney General Eric Schneiderman said he was looking into practices in the space.

Andrew R. Johnson had this story for the Wall Street Journal:

New York Attorney General Eric Schneiderman is investigating services offered by stock exchanges that he alleges give certain high-speed investors an unfair advantage by getting early access to data.

Mr. Schneiderman said during a speech Tuesday that he was urging stock exchanges to consider curbing such features and adopting proposed safeguards to ensure investors are competing on an equal playing field.

The features in question include “co-location,” which allow traders to locate their computer servers within exchanges’ data centers, and services that provide extra network bandwidth to high-frequency traders.

“These valuable advantages give high-frequency traders a leg up on the rest of the market,” Mr. Schneiderman said in the speech at New York Law School.

Mr. Schneiderman’s proposal is the latest in a continuing probe of Wall Street activities that allow investors and other market participants to gain a competitive edge through the early release of market-moving data, a practice he calls “insider trading 2.0.

Bloomberg reported that stock exchanges have been alerted to the attorney general’s concerns in a story by Keri Geiger and Sam Mamudi:

The attorney general’s staff has discussed his concerns with executives of Nasdaq and NYSE and requested more information, according to a person familiar with the matter, who asked not to be named because the talks were private. Schneiderman’s office is also looking into private trading venues, known as dark pools, and the strategies deployed by the high-speed traders themselves.

The investigation threatens to disrupt a model that market regulators have openly permitted for years as high-speed trading and concerns about its influence have grown. Trading firms pay to place their systems in the same data centers as the exchanges, a practice known as co-location that lets them directly plug in their companies’ servers and shave millionths of a second off transactions. They also purchase proprietary data feeds, which are faster and more detailed than the stock-trading information available on the public ticker.

“We publicly file with the SEC for each and every one of these services, and we’re always engaged with government officials around the world,” Robert Madden, a spokesman for New York-based Nasdaq, said in a phone interview, referring to the U.S. Securities and Exchange Commission. He and Eric Ryan, a spokesman for NYSE, declined to comment on Schneiderman’s investigation.

Writing for the Financial Times, Kara Scannell and Arash Massoudi pointed out that the Securities and Exchange Commission brought enforcement actions against some trading platforms regarding this issue:

Mary Jo White, chairman of the Securities and Exchange Commission, the federal agency that regulates the equity markets, told a congressional panel last year that high-speed markets required “constant monitoring and analysis.”

Over the past few years the SEC has brought enforcement actions against NYSE and other trading platforms for giving certain investors better access to the markets.

An SEC spokesman said: “We are working on these and a wide range of issues as part of our ongoing review of our current equity market structure. We appreciate hearing the views of all market participants and other interested parties, including attorney-general Schneiderman.”

The investigation comes as Virtu Financial, a leading global proprietary trading company, is preparing to launch investor meetings for an initial public offering later this quarter, which would make it the first pure HFT company to go public.

People familiar with Virtu’s plans have said it hopes to raise $250m from a listing at a valuation of as much as $3bn.

The attorney-general’s office has made a priority of looking at potential insider trading by firms that are quick enough or rich enough to gain an early look at market moving information. While it is not Wall Street’s top regulator, the office has often wielded the Martin Act to force change in lieu of filing lawsuits.

In an interview on CNBC today, detailed in a story by Bruno J. Navarro, Scheinderman said he wasn’t opposed to capital markets, just those who have an unfair advantage:

“The problem is high-frequency trading—it creates liquidity; that’s a good thing—but it creates instability, and that’s a bad thing,” he said. “And the constant arms race of people having the incentive, which they have now, to try untested methods to gain those extra milliseconds of speed—that is a danger to the markets.”

Scheinderman suggested that frequent batch auctions might be one solution.

The practice would help maintain liquidity in the markets while removing the ability for traders to exploit momentary mispricings with increasingly faster computers.

“They’re using arbitrage between exchanges now,” he said. “Tiny, tiny differences in the timing of pricing can now make money for these folks. So, what my proposal was, as regulators—the federal government’s got to be involved in this, too, CFTC and SEC—we’ve got to step up to the plate and deal with the challenges of this new technology.”

Schneiderman said he wasn’t thinking about proposing a tax on certain kinds of trading.

“I’m a big fan of America’s capital markets,” he said. “In the last five years, we have funded something like five times all of Europe has funded in terms of investments and start-up companies and almost five times the rest of the world,” he said.

“Right now, because of this constant quest for those extra milliseconds, the markets are at a little bit more risk than they need to be. We can preserve the liquidity by something like our frequent batch auction proposal, which is being discussed at a forum at New York Law School right now, while protecting the markets and capping the race for speed.”

While milliseconds might not seem like a lot, it can mean millions for high-frequency traders. Schneiderman said that quest for timing created extra risk in the system than necessary, but that’s a claim that could be hard to prove. Hopefully he’ll publicly disclose the findings of his investigation in the spirit of transparency that he’s promoting.

TBN

Talking Biz News Today — March 18, 2014

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Some of Tuesday’s top stories:

The Associated Press

US consumer prices tick up just 0.1 percent, by Christopher S. Rugaber

The New York Times

G.M.’s chief learned in December of Cobalt problems, by Bill Vlasic
Hedge fund spars with a nameless blogger, by Andrew Ross Sorkin

The Wall Street Journal

Amazon to ship video-streaming device in April, by Greg Bensinger

Forbes

GameStop sinking as Wal-Mart targets $2 billion video-game trade-in business, by Maggie McGrath

Bloomberg

Housing starts in U.S. little changed from stronger January, by Jeanna Smialek

Businessweek

Why this year’s NCAA tournament is Nike’s to lose, by Kyle Stock

Today in business journalism

Fox Business announces show for Bolton
NYTimes tech reporter Miller joining Upshot
Design director leaving Fortune
WSJ real estate team looking for three staffers
Fed reporter Zumbrun leaving for Bloomberg
More troubles for GM

This date in business journalism history

2008: Dow Jones drops AP, adds Agence France-Presse
2009: Portfolio killed Obama cover

 

GM

More troubles for GM

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General Motors Co. is increasing its response to safety issues, recalling more vehicles and vowing to do better. The coverage focused on various aspects of the crisis, but the long-term impact on the company could be the bigger issue.

Here are some of the details from the Wall Street Journal story by Jeff Bennett:

General Motors Co. Chief Executive Mary Barra stepped up her response to the company’s vehicle-defect problem, announcing three new safety recalls and vowing to change the way the auto maker handles recalls.

In a video posted on a GM website, Ms. Barra sounded a personal note as she tried to reassure customers, regulators, lawmakers and investors that the company is confronting not just the threats from defective vehicles but the corporate processes that failed to respond to them sooner.

GM last month recalled 1.6 million vehicles world-wide to fix faulty ignition switches that have been linked to a dozen deaths. It took the company nearly a decade to order the recalls after employees identified the problems ahead of the launch of the 2005 Chevrolet Cobalt compact car.

GM recalled some 1.7 million vans, sport-utility vehicles and Cadillac luxury cars to fix a variety of problems, chief among them a wiring defect that could result in seat air bags failing to deploy.

In all, GM has recalled 3.3 million vehicles world-wide since mid-February, with the majority of those sold in the U.S.

The top of the New York Times story by Bill Vlasic and Christopher Jensen focused on the comments by CEO Mary T. Barra and her plans for changing the way GM handles recalls:

Ms. Barra also made her most forceful comments yet on G.M.’s need to reform its safety efforts.

“Something went very wrong in our processes in this instance, and terrible things happened,” she said in an internal video broadcast to employees.

G.M. has come under intense pressure from government officials to explain why it took years to address faulty ignition switches that could cut off engine power and disable air bags in Cobalts and other small cars.

Ms. Barra’s comments to employees — including a letter on March 4 — represent the latest effort by the company to limit the damage that the recalls have inflicted on its reputation and consumer confidence.

“Mary Barra understands the value of taking full responsibility for G.M.’s latest, high-profile challenges, especially if she wants to send the message that this is a new G.M.,” said Karl Brauer, an analyst with the auto-research firm Kelley Blue Book.

Forbes contributor Micheline Maynard compared the issue to Toyota’s troubles in 2009:

GM’s predicament is the same kind of uproar that surround Toyota five years ago. In 2009 and 2010, the Japanese’ carmaker’s sterling reputation was battered by millions of recalls involving sudden acceleration in a variety of its vehicles. Like GM, Toyota was in the spotlight for months, as investigators and trial lawyers delved into its production methods and corporate culture. While the crisis ended after about half a year, Toyota is still mopping up the damage.

The 2009-10 experience was a historic turning point for Toyota, coming not long after it passed GM to become the world’s biggest carmaker. Used to maneuvering with an aura of opaqueness, Toyota had little preparation for the kind of scrutiny that came its way.

It was especially trying for Toyoda’s new chief executive, Akio Toyoda, the grandson of the carmaker’s founder. Toyota initially resisted efforts to have Toyoda testify before Congress, saying that the matter could be handled by its North American operations. But as it emerged that the decision making process for handling the recalls rested in Japan, Toyoda flew to Washington in February 2010 to appear before the House Committee On Oversight and Government Reform, one of three panels that opened investigations in the Toyota recalls.

Ben Klayman reported for Reuters that GM was working with suppliers to fix the costly problem:

The Detroit automaker said on Monday it would take a $300 million charge in the first quarter, primarily to cover the costs related to the ignition-switch recall and the three new recalls.

Barra previously apologized for GM’s failure to catch the faulty ignition switches sooner. In Monday’s video, she said GM is “conducting an intense review of our internal processes and will have more developments to announce as we move forward.”

The decade-long process that led to last month’s ignition-switch recall of such older GM models as the 2005-2007 Chevrolet Cobalt and 2003-2007 Saturn Ion has led to government criminal and civil investigations, congressional hearings and class-action lawsuits in the United States and Canada. All ask why GM took so long to address a problem it has said first came to its attention in 2001.

Barra said on Monday that the company was working with the supplier of the ignition switches, Delphi Automotive, to add a second production line for replacement parts and that customers would receive a detailed notice by mail during the second week of April.

While GM works to contain the problem, shareholder didn’t seem to mind the latest news. The stock was up slightly on Monday. The true test will be if consumers shun the automaker, which will be told in quarterly results.

TBN

Talking Biz News Today — March 17, 2014

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Some of Monday’s top stories:

New York Times

Man named by Newsweek issues denial on Bitcoin claim, by Peter Lattman
U.S. steps up sanctions on Russian officials, by Peter Baker

Reuters

Vodafone agrees $10 billion deal for Spain’s Ono, by Kate Holton

The Wall Street Journal

Alibaba: A mix of Amazon, eBay and PayPal with a dash of Google, by Juro Osawa
RWE to sell DEA to Russian-led investors for $7.1 billion, by Christoph Steitz

Bloomberg

NCAA, top conferences called a cartel in player pay suit, by Scott Soshnick
Manufacturing production in U.S. rises by most in six months, by Lorraine Woellert

Businessweek

Forget Wine Club. The Times would like to manage your money, by Felix Gillette

Today in business journalism

Reuters names economics editor, Canada bureau chief and regional editor
Valuing the Business Insider audience
From dream job at WSJ to new possibilities
More business news in more ways
Forbes Ukraine publisher loses his license
China’s Alibaba plans U.S. IPO

This date in business journalism history

2007: LA Times story on subprime lenders has issue
2008: Financial Times makes changes to U.S. operations

Business journalism birthdays

March 17: Karen Toulon of Bloomberg News

 

Alibaba

China’s Alibaba Plans U.S. IPO

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The market for initial public offerings is heating up. To prove it, China’s e-commerce site Alibaba is planning to list its shares in the U.S. in a long-awaited share sale.

Reuters has these details in a story by Elzio Barreto and Denny Thomas.

Chinese e-commerce giant Alibaba Group Holding Ltd has decided to hold its long-awaited IPO in the United States and is in discussions with six banks to underwrite the deal, in what is set to the most high-profile public offering since Facebook Inc’s listing nearly two years ago.

Alibaba said in a statement on Sunday it had decided to begin the U.S. IPO process, ending months of speculation about where it would go public.

Separately, sources told Reuters that Alibaba is in discussions with Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs Group, J.P. Morgan, and Morgan Stanley for lead underwriting roles.

Most of the six banks are to set to win the coveted role of joint global coordinator, added the sources, who were not authorized to discuss the matter publicly.

Analysts estimate the Hangzhou, China-based company has a value of at least $140 billion, and the IPO proceeds could exceed $15 billion, Reuters previously reported. The deal would be a huge coup for the six banks, as it would yield an estimated $260 million in underwriting fees, assuming 1.75 percent commission, and catapult them in league table rankings.

The Bloomberg story by Lulu Yilun Chen added this background on the reasons for listing in the U.S. versus an Asian market:

“The U.S. has obvious advantages in terms of the depth of the pool of capital and sophistication of the investor base,” said Duncan Clark, Beijing-based chairman of BDA China Ltd., which advises technology companies. “In terms of the control issue, Jack and the management, it seems that the Hong Kong stock exchange wasn’t able to accommodate.”

Alibaba has decided to start the process for an IPO in the U.S., and a future listing in China may be considered “should circumstances permit,” the Hangzhou-based company said yesterday in a statement. Alibaba proposed that its partners nominate a majority of the board of directors, a system that isn’t allowed under Hong Kong rules.

The IPO may be the biggest since Facebook Inc. (FB) in 2012 and is a blow to Hong Kong, which hasn’t hosted an initial share sale of more than $4 billion since October 2010. Alibaba hasn’t decided when to file for the listing, which U.S. exchange to list on, how much to raise or how large a stake to sell, the person familiar said.

Alibaba bought back a 20 percent stake from Yahoo! Inc. in 2012 in a deal that valued the Chinese company at $35 billion. The Sunnyvale, California-based Web portal still owns 24 percent of Alibaba while Japan’s SoftBank Corp. (9984) owns about 37 percent stake, the companies have said.

Gregory Wallace wrote for CNN Money that Alibaba has been negotiating for months with Hong Kong regulators about where to list:

Alibaba’s long-awaited decision was revealed Sunday after months of negotiations with Hong Kong stock authorities. The company had said a major sticking point was its proposed governance structure.

Alibaba’s announcement included a reference to that issue: “We respect the viewpoints and policies of Hong Kong and will continue to pay close attention to and support the process of innovation and development of Hong Kong.”

But the decision for a U.S.-based IPO “will make us a more global company and enhance the company’s transparency, as well as allow the company to continue to pursue our long-term vision and ideals.

But Wall Street is watching who will win the coveted roles of working on the offering. While there is plenty of money to go around, the Wall Street Journal story by Telis Demos and Juro Osawa said Alibaba planned to pay them all the same:

Credit Suisse Group AG CSGN.VX -2.89% , Deutsche Bank AG DBK.XE -1.52% ,Goldman Sachs Group Inc., GS -0.81% J.P. Morgan Chase JPM -1.08% & Co. andMorgan Stanley MS -1.08% are expected to get equal billing for their jobs as co-lead underwriters of the IPO, according to people familiar with matter.

The Chinese e-commerce company also is considering paying the banks about the same fee, though a final decision hasn’t been made and plans may shift, the people said.

With that arrangement, Alibaba would be making a break from recent large Internet IPOs, including those of Facebook Inc. FB -1.61% and Twitter Inc., TWTR -3.08% which each paid one bank far more than the others that were named to senior roles.

In the Facebook and Twitter deals, respective lead banks Morgan Stanley and Goldman Sachs received nearly twice the fees of the next tier of underwriters, according to company filings.

Alibaba, whose websites conduct more business than Amazon.com Inc. AMZN +0.60%‘s, said in a statement over the weekend that it has started its long-awaited march to an IPO in the U.S. after initially weighing a deal in Hong Kong.

The company picked the banks as co-leads of the planned share sale, The Wall Street Journal reported over the weekend. Citigroup Inc. also has a role in the deal, according to people familiar with the matter; details of the role weren’t clear Sunday night.

The IPO, which could come as soon as this summer, may raise more than $15 billion, making it one of the largest ever in the U.S., people familiar with the matter said.

That could translate into hundreds of millions of dollars in fees and other business to banks and exchanges in the U.S.

And that’s really what IPOs are all about. Individual investors rarely get to buy into the first sale meaning that institutional investors get the biggest first day gains. The real winners are likely to be those who get to list the shares.