Answers to a Puzzling Deal at Alibaba Remain in the Shadows The Chinese Internet giant Alibaba is looking to join the ranks of Google and Microsoft with an initial public offering that could give it a value of more than $100 billion. But the company's recent acquisition of the Hong Kong-listed company Citic 21CN shows just how much we still don't know about Alibaba and its business. Alibaba announced last week that it was in a deal to buy a 54.3 percent stake in Citic 21CN for about $171 million. Before the announcement, Citic 21CN was a sleepy Bermuda company listed in Hong Kong since 1972 with its principal business in "system integration and software development." Its stock was moribund, and its biggest shareholder was the Chinese state company Citic Group, hardly an Internet force. Why did Alibaba acquire this company? At the time, Alibaba stated that the investment was aimed at developing "a pharmaceutical product information platform by leveraging on Citic 21CN's vast pool of pharmaceutical product data and combining this with Alibaba Group's e-commerce, cloud computing and big data capabilities." It sounds a little like corporate mumbo jumbo, and it sent investors into a frenzy. In an unusual move, Alibaba did not pay a premium for a controlling stake in Citic 21CN. Instead, it paid almost a 60 percent discount to Citic 21N's trading price only 10 days before. Other investors had no luck; they bid up Citic 21CN's shares about 370 percent in a single day. People speculated that the rise was because Alibaba's investment in the company was a "backdoor listing." In a public filing with the Hong Kong Stock Exchange, Citic 21N stated that the acquisition "may involve the possible injection of certain complimentary businesses by" Alibaba. This may have also spurred the backdoor I.P.O. speculation. Frankly, if this is why people bid up Alibaba's stock fourfold, it seems a silly assumption. Some have been speculating that Alibaba may want a backdoor I.P.O. because the Hong Kong Stock Exchange has refused to waive its "one share, one vote" rules. Such a waiver would allow Alibaba to complete an I.P.O. on the exchange with a structure that would keep control with its founder and executive chairman, Jack Ma, and a handful of top people at the company. It has been intimated by people close to Alibaba that it may move its I.P.O. to the United States or another location with more permissive rules. Talk of Alibaba's possible move to the United States has apparently prompted the Hong Kong Stock Exchange to show signs that it may waiver from its opposition. Recent reports are that the exchange is considering a public debate on whether to keep these rules. But if the Hong Kong Stock Exchange doesn't cave to pressure, does anyone think that Alibaba could surreptitiously shove billions of assets into Citic 21CN without the Hong Kong Stock Exchange saying something? The same rules barring Alibaba's share structure would apply to Citic 21CN if Alibaba tried to use it as a backdoor listing. The rationale for this frenzy seems overblown, but the fact that it happened highlights perhaps a bigger issue. Alibaba's acquisition was structured in a manner as if it were intended to incite speculation, which only heightens concerns over how this company will be run after its I.P.O. if it remains controlled by Mr. Ma and his colleagues. Alibaba did not solely purchase this stake in Citic 21CN. Alibaba's partner was Yunfeng Capital, a private equity firm also co-founded by Mr. Ma. Yunfeng is focused on investing in Chinese telecommunications, technology and health care companies. When the purchase clears Chinese regulatory authorities, Yunfeng will own 16.2 percent and Alibaba 38.1 percent of Citic 21CN. Why would Alibaba acquire control of Citic 21CN with Mr. Ma's private equity firm instead of going it alone? Certainly, it had the capital. If Alibaba, which underwent an $8 billion debt refinancing last year, can't afford a $171 million purchase, then it has bigger problems. When the transaction was announced, Alibaba did not explain why it acquired this stake with Yunfeng. When asked for comment, a representative of Alibaba directed me to the initial news release announcing the transaction. In the absence of a compelling reason, the acquisition raised the question of whether Mr. Ma was benefiting from his ties to Alibaba. The e-commerce company is providing capital and expertise to Citic 21CN, and to the extent Alibaba uses its huge network in China to help the company, then Mr. Ma's private equity fund firm will also benefit. Mr. Ma has announced that his profits from Yunfeng will be donated to charity to benefit the Chinese environment, but the private equity firm will still benefit from the deal. It is hard to think how this would play out if Alibaba were listed in the United States. In 2007, when Google Ventures invested about $3.9 million in 23andMe, the company founded by Sergey Brin's wife at the time, Anne Wojcicki, Google was criticized for investing in a start-up of a founder's wife. That was only a few million dollars. The bigger question may be why Alibaba would acquire such a sleepy company. In a filing with the Hong Kong Stock Exchange, Citic 21CN states that Alibaba's intention is to develop Citic's "domestic drug data platform as well as to develop a data standard for medical and health care products." Perhaps this business has promise, but it is not even Citic 21CN's biggest. Drugs are a new area for the company and accounted for about 3 percent of its revenue of $63 million in its last fiscal year. You might think that paying a huge amount for a company with little revenue is par for the course for an Internet giant. But Citic 21CN was not known for having a particularly compelling technology or vision. It doesn't even have an active website. Indeed, if Citic 21CN were such a great company, you would have thought that Alibaba would have paid a premium to buy it. Alternatively, why not just buy the drug business itself rather than paying for the other businesses, too? Or spend $171 million to build a drug business yourself? This leaves the Citic 21CN investment as puzzling. This all may be well and good, because Alibaba is a private company now. Once it is public, however, Alibaba's practices may fall under more scrutiny. If Mr. Ma and his colleagues keep control of the company, one has to wonder what this means for public shareholders. Will Alibaba continue to enter into deals with affiliates of Mr. Ma, and if it does, will it be for companies like this? To be fair, hype around the next big company tends to cause frenzied speculation. We saw this with the Facebook I.P.O. Alibaba may also be prone to be more open about its dealings once it has public shareholders. It has already moved to resemble the corporate structure of a Western company and is a model in China for corporate governance. But the scrutiny is only going to get worse for Alibaba as it heads toward a public listing. Once Alibaba does go public, it no longer has the luxury of being coy about its actions, no matter how small. That's the price you pay for being in the limelight, up among the technology giants of the world.