Alibaba looks to build big cash stash for buyouts

In a video prepared by Alibaba executives for potential investors, the company’s genesis is described as one to help small, Chinese wholesalers compete with global players.

With Alibaba’s massive initial public offering coming down the pike, the company’s own global ambitions are becoming more apparent—even in the structure of the deal. (Watch the video here.)

Alibaba disclosed Friday its plans to sell 320 million shares at up to $66 apiece. While the size of the offering has been arranged for some time, people familiar with the deal said, the portion of new shares to be issued by the company is higher than originally planned.

The reason is simple: More proceeds will go to the company’s coffers instead of those of investors like Yahoo, which bought a 40 percent stake in Alibaba in 2005 for a then-paltry $1 billion. Yahoo previously told investors it would sell up to 208 million shares, but that number in the most recent filing decreased to roughly 122 million shares.

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Alibaba, which declined additional to comment to CNBC, said in the filing that the proceeds will lift its pro forma holdings of cash and cash-like securities to more than $16 billion from $9 billion, when all is said and done. Based on the most recent quarterly results, that would springboard Alibaba’s cash stash higher than those of Facebook and eBay, while still smaller than AmazonGoogle and Apple.

The decision to raise the newly issued share portion stemmed from the company’s desire to compete with U.S. tech companies for hot Internet and media properties when they’re up for sale, these people familiar with the matter said.

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“What would (Alibaba) have done in the WhatsApp situation?” said one of these people, suggesting the company would have wanted to rival Facebook’s $19 billion (winning) bid for the company in March.

Reuters Alibaba headquarters in Hangzhou, Zhejiang province, in China.

Alibaba headquarters in Hangzhou, Zhejiang province, in China.

Perhaps Facebook’s even stronger weapon than cash is its own stock, which it frequently uses to fund deals. Its acquisition of WhatsApp was comprised primarily of stock, as was its $1 billion acquisition of Instagram in 2012.

ConvergEx’s chief market strategist, Nicholas Colas, in a note to clients titled “Alibaba and the Forty Trades,” said he expected much the same from the company once it goes public.

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“We’d be surprised if it did not make some strategic acquisitions—perhaps large ones—in its first year or two of public ownership,” Colas wrote, noting that perhaps more important is the company’s keenness for international growth. “Nowhere in Alibaba’s mission statement does the company limit its ambitions to merely the Chinese economy.”

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