Finimize - 💰 Alibaba wants billions

What’s going on here?

DuPont announced a plan to split itself into three publicly traded companies, as the $33 billion industrial giant saw the merit of the classic “divide and conquer” strategy.

What does this mean?

DuPont is the latest of many US multinationals to take a trip to Splitsville. The maker of Styrofoam and Kevlar plans to divide its business into three distinct companies over the next two years, allowing each to have a specialized focus in the hope that’ll translate to higher revenue. DuPont will spin off its electronics and water segments, which brought in $4 billion and $1.5 billion of last year’s sales respectively. The remaining “New DuPont” – responsible for $6.6 billion in sales – will be left to concentrate on biopharma, medical devices, and high-profile brands like flame-resistant material Nomex.

Why should I care?

Zooming out: It’s time to focus.

DuPont isn’t breaking new ground here: General Electric split into three ways last month, and Johnson & Johnson recently spun off divisions, too. While there are perks to keeping businesses together, like pooled costs, they can’t compete with the advantages of a smaller, more focused unit right now. See, fewer distractions and more flexibility allows leadership teams to make strategies more targeted. And the cherry on top is that a breakup can let a company get rid of layers of redundant, expensive management.

The bigger picture: The sum of the whole.

Investors will spend a lot on fast-growing businesses. The problem with big, bulky conglomerates, though, is that it’s tricky to untangle their different revenue streams and products from the outside. That makes it harder for investors to accurately value a firm, and the resulting uncertainty could scare them off. So by stripping out the complexities, costs, and admin that come with size, DuPont may well find that its individual businesses are valued higher as three parts than one whole.

What’s going on here?

Reports speculated that Chinese tech giant Alibaba is considering raising billions through an unexpected type of funding.

What does this mean?

Alibaba makes most of its money from ecommerce – but these days, it’s being forced to share that cash cow with local Chinese rivals like ByteDance and PDD Holdings. The company’s cloud business has done little to cushion that blow: the division has been trailing behind US competitors like Amazon Web Services for over two years now. Add in a bout of turmoil from within the company’s own offices, and Alibaba’s shares are down nearly three-quarters from their peak in late 2020. But Alibaba has a plan to push the stock back up: funnel a ton of cash into AI and buy back billions of dollars of its own shares, since reducing supply should increase prices. To pull that off, though, the firm needs to find some pocket money.

Why should I care?

Zooming in: I'm not a regular bond, I'm a "cool" bond.

Alibaba is reportedly considering selling “convertible bonds” to raise around $5 billion. They’re like regular bonds, except they can be swapped for shares at a later date – usually if or when the stock reaches a certain pre-set price. And because they come with that extra perk, convertible bonds tend to pay less in interest than normal ones. That allows firms to borrow on the cheap side, without immediately watering down the value of their stock by issuing brand-new shares.

The bigger picture: JD did it first.

JD.com might have inadvertently pushed Alibaba into action: the rival company successfully issued $1.75 billion in convertible bonds earlier this week, with eager investors buying more than the initial target of $1.5 billion. And while Alibaba currently pays more than 5% interest on its regular bonds, JD only needs to hand out 0.25% on those convertible bonds. So if Alibaba can get a similar deal, it’ll save a ton on interest expenses.