Thursday, May 19, 2011

Yahoo & Alibaba working out Strained Relationship

Business news from the Ascentive team


Internet giant Yahoo and Chinese Internet company Alibaba Group presented a united front Sunday as they worked on a dispute that seemed to cause even more tension in their strained relationship.

Although the two tech giants offered few details, they released a one-sentence statement saying they were in "productive negotiations" to work out "outstanding issues related to Alipay." Aliplay is Alibaba's online payment service. Yahoo, which owns a 43 percent stake in Alibaba, saw its stock tumble last week after it announced Tuesday that Alibaba had spun off Alipay. The announcement caused investors to worry that Yahoo's stake in Alibaba will become less valuable, and also brought into clearer focus the rockiness of the two companies' relationship.

The statement reads, "Alibaba Group, and its major stockholders, Yahoo! Inc. and Softbank Corporation, are engaged in and committed to productive negotiations to resolve the outstanding issues related to Alipay in a manner that serves the interests of all shareholders as soon as possible," the statement said, in its entirety.

Sunday’s issued statement was reminiscent of an earlier statement from Tuesday, when Yahoo said it was engaged with Alibaba and Softbank in ongoing discussions regarding the terms of the restructuring and the appropriate commercial arrangements related to Alipay. Yahoo and Alibaba also disagree over when Yahoo was informed of the spinoff, which transfers ownership of Alipay to another company owned by Alibaba Group's CEO, Jack Ma. The transfer is said to have occurred last August, but Yahoo claims that it wasn't notified until March 31. Alibaba says Yahoo's board was informed of the ownership change during a July 2009 meeting.

In Tuesday's regulatory filing, Yahoo said Alibaba had spun off Alipay so it could more quickly obtain what’s been described as an essential regulatory license. Ma has become more antagonistic since Carol Bartz, a brash Silicon Valley veteran, became Yahoo's CEO in January 2009. With Alipay under his control, analysts believe Ma could have more negotiating power if Yahoo tries to sell its stake in Alibaba.

Founded in 1999 in Hangzhou, China, Alibaba’s purpose is to make it easier for buyers and suppliers around the world to do business online through three marketplaces: a global trade platform for importers and exporters; a Chinese platform for domestic trade in China; and, through an associated company, a Japanese platform facilitating trade to and from Japan. In addition, Alibaba.com offers a transaction-based wholesale platform on the global site geared for smaller buyers seeking fast shipment of small quantities of goods. Together, these marketplaces form a community of more than 65 million registered users in more than 240 countries and regions. Alibaba is now one of China's most powerful Internet companies, and its success has helped bolster Yahoo as the Sunnyvale, Calif., company has struggled to keep up with Google Inc. The six-year investment has also been a way for Yahoo to keep a toehold in fast-growing China after it and other companies, including Google, have had a hard time growing their own businesses in the heavily regulated and politicized country.

In the first quarter, Yahoo's net income fell 28 percent. The net income of Alibaba.com, the flagship company of Alibaba Group, rose 37 percent.

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