BEIJING, May 23 (TMTPost)— Alibaba Group Holding Limited is set to launch an overhaul for its cloud division prior to the spinoff and separate listing in Hong Kong.

Source: Visual China

Alibaba has initiated a new round of layoff within its unit engaged on cloud service, and could cut about 7% of staff, as part of preparation for a spinoff and the following initial public offering (IPO), Bloomberg reported on Tuesday, citing people with knowledge of the matter. With an aim to streamline the business, Alibaba’s cloud arm has started to inform affected employees and was offering severance to them, or unguaranteed opportunities of transfers to other divisions, according to the people.  

The recent move is nothing but normal workforce optimization involving positions within the organization, Alibaba Cloud Intelligence Group, the abovementioned unit, later that day responded. The optimization is scheduled to take place this month, right after the annual bonus paid, the insider at the unit told the Security Times, a state-owned national financial newspaper. It’s the normal action since the company carries out the optimization of positions and personnel every year, the insider noted. The optimization this year will affect around 7% of workforce, and the sacked employees would receive the severance package of N+1+1, namely, the payment including the standard severance compensation at the rate of an average salary for the past 12 month, plus one month of salary, plus the vocation pay if the employee has any untaken paid annual leave, the people added.

Alibaba didn’t specify how many people each of business group boasts. The financial report released last Wednesday showed it had a total of 235,216 employees as of March 31, 4,524 people, or about 1.9% less than three months earlier.

The layoff report came ahead of Alibaba’s further effort for breakup. The Chinese internet giant announced in late March to split into six business groups, five of which will have the flexibility to raise external capital and potentially to seek its own IPO, with the exception of Taobao & Tmall Group, which will remain wholly-owned by Alibaba Group. Alibaba Group’s chairman and CEO Daniel Zhang, also known as Zhang Yong, called the move “the most significant governance overhaul” since Alibaba’s inception and said each business group is fully responsible for its performance, with financial independence.

Alibaba said last Wednesday that its board of directors approved a full spin-off of the Cloud Intelligence Group via a stock dividend distribution to shareholders, aiming to complete the breakup in the next 12 months and make the group an independent publicly listed firm. The board also approved, to serve as chairman and CEO of the Cloud Intelligence Group, including cloud, artificial intelligence (AI), DingTalk and other businesses. Alibaba plans to include external strategic investors in the cloud business group through private financings prior to the spinoff. The spinoff is subject to restructuring of certain assets, liabilities and contracts, implementation of employee equity incentive plans, market conditions, as well as regulatory reviews and approvals in relevant jurisdictions.

Listing plans about two other business groups also got the nod from Alibaba’s board. Freshippo (Heman), a grocery stores operator under the China commerce segment, is approved to execute an initial public offering (IPO), and expected to be completed in the next 6 to 12 months. Cainiao Smart Logistics, a group provides supply chain, logistics and delivery services that Alibaba holds a 67% stakes in, is approved to explore an IPO with the target to complete the deal in the next 12 to 18 months.