What happened

Shares of the large Chinese tech conglomerate Alibaba Group (BABA 6.38%) had blasted nearly 20% higher this week as of 1:09 p.m. ET Thursday, according to data from S&P Global Market Intelligence.

The move comes after Alibaba announced that it is planning a major restructuring effort that will see the massive company split into six different parts and potentially involve numerous initial public offerings.

So what

Earlier this week, Alibaba announced that it plans to reclassify into a holding company and then split into six different divisions to house its various businesses including its cloud intelligence group, Taobao Tmall commerce group, local services group, Cainiao smart logistics group, global digital commerce group, and digital media and entertainment group. Each entity will have its own CEO and board of directors and will consider initial public offerings, although likely at different times.

Daniel Zhang is expected to remain as CEO of the holding company and head the cloud intelligence group. On Thursday, media outlets reported that Cainiao, which could be valued at $20 billion, could be the first to go public.

The major restructuring effort would accomplish two big things, according to analysts. For one, it could appease regulators because the new company structure may have fewer antitrust issues and create less regulatory risk, as not every unit would necessarily be impacted by a regulatory action.

Additionally, analysts believe the various spinouts will lead the market to value the company in a more favorable manner.

"We believe investors' valuation framework will shift from a blended forward P/E to SOTP [sum of the parts] as news flow on initial public offerings hits the market, leading to as much as 100% potential share price upside," said analysts at J.P. Morgan in a recent research note.

Now what

Spinning out a company can be a great way to realize value but only if losing the business does not hurt the parent company too much in terms of revenue or profitability.

Seeing as there are so many large and attractive tech and e-commerce businesses under Alibaba's umbrella, the restructuring initiative certainly looks very compelling and should help from a regulatory perspective as well. The market is right to like the move.