Yahoo and Chinese Partner Alibaba Group Feuding Over Asset Restructuring

By Tracey E. Schelmetic May 16, 2011

Yahoo and Alibaba Group, a privately owned, Hangzhou, China-based family of Internet businesses including b-to-b international trade, online retail and payment platforms, and data-centric cloud computing services, are having a bit of a family feud. Back in August of 2005, Yahoo purchased a 40 percent stake in Alibaba, but the Chinese company's recent transfer of a major Internet asset has Yahoo unhappy, and the future of the two companies' relationship in question.

Yahoo shares have fallen 11 percent since Tuesday, when it accused Alibaba of restructuring Alipay, an online e-commerce payment system similar to eBay Inc's PayPal, to Alibaba Chief Executive Officer Jack Ma.

Analysts said this reduced the value of Yahoo's now 43 percent stake in Alibaba – considered one of its most valuable assets, reported Reuters.

After initially issuing contradictory statements, both companies said in a joint statement that they were in negotiations and were committed to resolving the dispute.

However, analysts said the soured relationship between Alibaba and its major shareholder is a deep-rooted one and any attempts to improve ties will not be easy, said Reuters.

“You will see more difficulties in communication and potential disagreements probably until the day Yahoo decides to sell back its stake in the company,” said Mark Natkin, managing director of Marbridge Consulting.

Yahoo said it was blindsided by the Alipay deal, while Alibaba countered that Yahoo was aware of the transaction by virtue of having a board seat, now held by former Yahoo Chief Executive Jerry Yang, who is also a Yahoo director.

Yahoo and Alibaba have endured long simmering tensions since the departure of Yang from Yahoo. Alibaba has repeatedly said it wants to buyback Yahoo's stake in it, while Yahoo has said it is not keen on selling.

Natkin said the dispute was unlikely to escalate further. “Yahoo has been in the China market long enough to know that it must be pragmatic in working together with the government and working long the government timeline,” he said. “I feel a lawsuit won't be productive and won't put them in a favorable position with the government.”

On Saturday, Ma told a shareholders' meeting in Hong Kong that the move to spin-off Alipay was lawful and transparent, Bloomberg News reported.

Alibaba Group owns and Taobao, China's largest e-commerce Web site with a consumer focus.

The feud underscores the tense relationship between Ma and Carol Bartz, Yahoo's chief executive since January 2009.

“For Carol (Bartz) the majority of the worth of Yahoo's shares come from Alibaba and yet she doesn't listen to Alibaba. So that's some of her fault as well, that she doesn't know what is happening in China,” said Dick Wei, a Hong Kong-based analyst with JPMorgan.

Alibaba said the board was informed in July 2009 that majority shareholding in Alipay had been transferred into Chinese ownership.

The company said its move to restructure Alipay came as China was about to impose new regulations on online payment providers. China's central bank strengthened regulations last year governing third-party online payment systems requiring them to apply for a license.

Japan's Softbank Corp also owns a stake in Alibaba. Four directors make up Alibaba's board, including Yang and Softbank founder Masayoshi Son.

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Tracey Schelmetic is a contributing editor for TechZone360. To read more of Tracey's articles, please visit her columnist page.

Edited by Jennifer Russell

TechZone360 Contributor

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