Published - March 28, 2023 @ 5:50 PM (EET)

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In the most significant structural overhaul in Alibaba's (NYSE:BABA) history, the Chinese e-commerce giant on Tuesday said it would split its $220 billion empire into six business groups, each able to raise outside funding and go public.

The news comes a day after Jack Ma, who founded the company 24 years ago, was seen back in mainland China after almost a year overseas.

After a tumultuous few years that saw slowing economic growth and stricter regulation from Beijing, Alibaba said the move is "designed to unlock shareholder value and foster market competitiveness," sending Alibaba shares up more than 9% in pre-market trade in the US.

Overseen by current Chairman and Chief Executive Daniel Zhang, Alibaba will become a holding company of its main divisions, laying the foundation for future spinoffs and market debuts.

The six business groups will be split into six separate areas. They will revolve around its strategy priorities: cloud, Chinese e-commerce, global e-commerce, digital mapping and food delivery, logistics, and media and entertainment.

Each business group will have its own CEO reporting to a board of directors and be fully responsible for performance.

WHY IT MATTERS

Alibaba's announcement Tuesday marks a departure from the internet company's traditional preference for keeping most of its operations under one roof, operating everything from supermarkets to data centers under the Alibaba umbrella.

In 2018, Mr. Ma began a centralization drive to bring the company's subsidiaries and affiliates into closer alignment, part of the so-called Alibaba Economy.

Moreover, the change indicates that Alibaba is ready to tap investors and public markets after the Xi Jinping administration's clampdown aimed at reining in the country's powerful tech sector wiped out over $500 billion of its value. 

In late 2020, regulators subsequently launched a probe into Alibaba for alleged anticompetitive behavior on its e-commerce platform and later hit the company with a record $2.8 billion fine.

In a letter to employees, CEO Mr. Zhang said,

"This transformation will empower all our businesses to become more agile, enhance decision-making and enable faster responses to market chances."

Mr. Ma's reappearance in China at a time when Beijing is seeking to revive entrepreneurs' confidence wasn't related to the announcement, people inside the company said.

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