Alibaba Group Holding Ltd. is China’s biggest e-commerce company. Photographer: Nelson Ching/Bloomberg

March 17 (Bloomberg) — Alibaba Group Holding Ltd. kicked off the process for what may be the biggest U.S. initial public offering in two years after struggling to persuade Hong Kong regulators to approve its proposed governance structure.

China’s biggest e-commerce company plans to work with Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc. JPMorgan Chase & Co. Morgan Stanley and Citigroup Inc. according to a person familiar with the matter. Investment banks value Alibaba, founded by former English teacher Jack Ma, at as much as $200 billion, which would make it the second-biggest Internet company behind Google Inc. based on market capitalization.

“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.

SoftBank Surges

The IPO may be the biggest since Facebook Inc. 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.

“This will make us a more global company and enhance the company’s transparency,” Alibaba said in the statement. “Should circumstances permit in the future, we will be constructive toward extending our public status in the China capital market.”

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. owns about 37 percent stake, the companies have said.

SoftBank rose 6.1 percent to 8,200 yen as of 1:57 p.m. in Tokyo, headed for the biggest jump since August. The Topix index declined 1.1 percent.

“SoftBank’s share price went up because of Alibaba’s IPO story,” said Satoru Kikuchi, an analyst at SMBC Nikko Securities Inc. in Tokyo.

Goldman, JPMorgan

SoftBank President Masayoshi Son likely will use money gained from the Alibaba IPO to acquire companies in the information technology and Internet industries, he said.

The company hasn’t signed official contracts with banks for the IPO, the person said. Representatives of Goldman Sachs, JPMorgan, Credit Suisse, Deutsche Bank and Citigroup declined to comment. A spokesman for Morgan Stanley wasn’t available to comment.

Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan and Morgan Stanley will have equal roles on the IPO, while Citigroup will be in a more junior position, the person with knowledge of the matter said.

The prospectus for an IPO may be disclosed as soon as April, people familiar with the matter have said. The company is also working with New York-based law firm Simpson Thacher & Bartlett LLP, two people familiar with the matter have said.

GM, Visa

Alibaba may sell about a 12 percent stake in itself, said one person with knowledge of the matter, making it an $18.4 billion offering based on the $153 billion average valuation of analysts, according to data compiled by Bloomberg.

That would surpass General Motors Co.’s 2010 sale to rank behind Visa Inc. as the second-biggest U.S. IPO ever, according to the data. Facebook raised $16 billion in May 2012, according to data compiled by Bloomberg.

Alibaba’s expansion since Ma started the company in his Hangzhou apartment in 1999 with two dozen items for sale mirrors China’s emergence as an economic superpower. The company had about 25,000 employees at the end of February and generated about 70 percent of package deliveries in China in 2012. Customers bought 35 billion yuan ($5.7 billion) of goods on one sales promotion day via Alibaba’s two main platforms last year.

Surging Sales

The success has made Ma, 49, one of China’s richest people, with an estimated net worth of $11.4 billion, according to the Bloomberg Billionaires Index.

There is still room for growth. China has 618 million Internet users, greater than the population of any other country except India, and McKinsey & Co. estimates China’s Internet retail market will triple to $395 billion from 2011 to 2015.

Alibaba, which operates online markets for products from Louis Vuitton bags to Boston lobsters, posted its fourth straight quarterly profit on surging sales. Net income attributable to ordinary shareholders was $792 million in the three months ended September, a 12 percent increase from the June quarter, according to a January presentation from Yahoo! Inc. which owns a 24 percent stake. Revenue rose 51 percent to $1.78 billion.

Higher Valuations

Analyst valuations of Alibaba rose 28 percent after the earnings, with the company worth $153 billion, according to the average of 10 estimates compiled by Bloomberg News in February. That would make it bigger than 95 percent of the Standard & Poor’s 500 Index.

Macquarie Group Ltd. estimated Alibaba could be worth $200 billion. Google has a market capitalization of $394 billion; Amazon $172 billion; and Facebook, owner of the world’s largest social network, $172 billion, according to data compiled by Bloomberg.

Billionaire Ma Huateng’s Tencent Holdings Ltd. operator of the WeChat instant messaging service, is the biggest Hong Kong-traded Internet success story so far. Shares have soared almost 150 times from the June 2004 IPO price of HK$3.70, giving the company a market value of $132 billion.

The IPO of Mark Zuckerberg’s Facebook valued the company at $104 billion, and the shares lost as much as half their value in the first few months of trading before starting to recover. On Aug. 3, Facebook closed above its $38 offering price for the first time after mobile-ad sales surged. The stock closed at $67.72 on Friday.

Exchange Response

Alibaba’s $792 million profit in the September quarter, the most recently disclosed by Yahoo, compares with the $422 million Facebook earned in the same period and Tencent’s net income of 3.9 billion yuan, or $634 million.

Alibaba asked Hong Kong’s exchange to allow a partnership of executives and shareholders to nominate the majority of board members, a person with knowledge of the matter said in August. That would enable Ma, who owns 7.4 percent, and his management team to maintain control.

Hong Kong’s bourse doesn’t allow share classes with different voting rights, as the U.S. does. Such arrangements helped Zuckerberg and Google co-founders Larry Page and Sergey Brin keep control of their companies after they went public.

The Hong Kong exchange needs to find ways to make the market more responsive and competitive, particularly with new economy or technology companies, Chief Executive Charles Li said today in an e-mailed statement.

Partnership Structure

Alibaba would “never” change its partnership structure, Reuters cited Executive Vice Chairman Joseph Tsai as saying in an interview on March 12.

“Alibaba’s preference to keep its partnership structure is probably the biggest reason why it chose to list in the U.S.,” said Stephen Yang, a Hong Kong-based analyst at Sun Hung Kai Financial Ltd.

Under Alibaba’s proposal, all shareholders would vote on the company’s nominees, with partners being able to nominate an alternate board member if shareholders reject a candidate, the person familiar with Alibaba’s thinking said. No other investor rights would be changed, the person said.

The company has 28 partners, Ma said in a Sept. 10 e-mail to employees.

After starting as a business-to-business marketplace on Alibaba.com, the company has morphed into a more consumer-focused operation. Its most popular platforms include Taobao Marketplace, which links individual buyers and sellers, and Tmall.com, which connects consumers to retail brands.

Affiliate Alipay, an online payment system like EBay Inc.’s PayPal, had more than 800 million registered accounts as of July. Alibaba also is expanding into financial services, mobile-phone operating systems and TV set-top boxes.

“Alibaba from day one has been based around making money, and it’s a real Chinese Internet success story,” said Mark Tanner, the founder of China Skinny, a Shanghai-based research and marketing agency. “Alibaba is huge now but will just continue to get a lot bigger.”

To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net ; Michael Tighe at mtighe4@bloomberg.net Robert Fenner