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Yahoo Tensions With Alibaba Tough To Resolve

May 16, 2011

Dispute over a major Internet asset transfer has escalated the already strained relationship between Yahoo Inc. and Alibaba Group, a Chinese Internet company, as they struggle to iron out differences.

In a joint statement, the two companies announced that they were in “productive negotiations” to resolve “outstanding issues related to Alipay,” which is the online payment service of Alibaba.

As Yahoo struggles to keep up with Google, Alibaba’s position as one of China’s most powerful Internet companies has helped the Sunnyvale, California Company. The investment in the Chinese company has also allowed Yahoo access into the fast-growing country of China where other companies have struggled to grow their own businesses in the heavily regulated and politicized country, reports the Associated Press (AP).

Alibaba is considered to be one of the most valuable assets for Yahoo, who holds 43 percent of the Chinese company’s shares. The restructuring of Alipay to Alibaba’s chief executive officer Jack Ma has caused Yahoo shares to drop as much as 11 percent, reports Reuters.

Investors are worried that Yahoo’s stake in Alibaba will become less valuable, and painted a clearer picture of the troubled relationship of the two companies.

“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 says.

Yahoo said Tuesday that ongoing negotiations regarding the terms of the restructuring and the appropriate commercial arrangements related to Alipay exists between the companies involved.

No comment has yet been given by Alibaba and Softbank Corporation, a Japanese firm that is also a longtime investor in Alibaba.

The two companies also disagree on when Yahoo was informed of the transfer to Jack Ma. According to Yahoo, the transfer occurred last August, but it was not told until March 31; while Alibaba says that Yahoo’s board was informed of the change in ownership.

Jerry Yang, former Yahoo CEO and current Yahoo director, sits on Alibaba’s board representing Yahoo.

Jack Ma told shareholders at a meeting in Hong Kong that the move to spin off Alipay was lawful and transparent, reports Bloomberg. Alibaba says that the move is a result of China imposing new regulations on online payment providers.

Reuter reports that China’s central bank strengthened its regulations last year to require third-party online payment systems to apply for a license.

Regulatory filing by Yahoo states that the Alibaba spinoff allowed it to obtain “an essential regulatory license.”

However, AP reports that since the appointment of Carol Bartz as the new Yahoo CEO, tensions between Yahoo and Alibaba’s Jack Ma has mounted. Analysts believe that with Alipay under his control, Ma could have more negotiating power if Yahoo tried to sell its stake in the company.

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

However, the dispute is not likely to escalate further, as Natkin notes that, “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. I feel a lawsuit won’t be productive and won’t put them in a favorable position with the government.”

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