Alibaba may cede Yahoo China to US namesake: report

Updated: 2013-03-18 10:55

By China Daily (China Daily)

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Chinese Internet giant Alibaba Group Holding Ltd, which has Yahoo Inc as a major investor and which manages Yahoo's China operations, is likely to "return" the Yahoo China unit to the US company as early as May, a Chinese news portal reported, citing an anonymous source.

The widely read news website of Beijing-based Sina Corp on Sunday quoted a former Yahoo China employee as saying that Alibaba had made the decision in February but may not announce it until May. The deal is likely to be conducted in the form of a share swap, but no details were reported.

Alibaba, which owns a huge online commerce empire with transactions on its websites exceeding 1 trillion yuan ($160 billion) a year, declined to comment on the business of Yahoo China, as did Yahoo China itself. Yahoo Inc, based in California's Silicon Valley, wasn't immediately available to comment.

In September, Alibaba bought back part of Yahoo Inc's stake, reducing it to about 23 percent as the Chinese company was transitioning from a public company - its shares previously traded in Hong Kong - to a privately held one. The company has said it plans to return to public markets through an initial public offering, though it hasn't offered a timetable. In a September 2012 agreement between the two companies, Yahoo offered financial incentives for Alibaba if the company is publicly listed by 2015.

In August 2005, Yahoo and Alibaba formed a partnership in which the US company paid its Chinese counterpart $1 billion and put its business operations in China under Alibaba's management in return for a 40 percent stake. The deal made Yahoo the single biggest shareholder of Alibaba.

Alibaba has been trying to reduce Yahoo's influence as it experiences explosive growth of its own, particularly from consumer-to-consumer website Taobao.com and online-payment service Alipay. The two businesses as competitors of eBay Inc and its PayPal in China and now dominates the space domestically. After sometimes-contentious negotiations, the companies agreed in May 2012 that Alibaba would pay $6.3 billion in cash and $800 million in preferred shares to reduce Yahoo's stake. In addition, the US company got $550 million worth of technology and intellectual-property licensing fees from Alibaba.

That agreement, concluded in September, also gave Alibaba the right to operate Yahoo China for up to four years while Yahoo would be free to invest in the world's biggest Internet market (564 million users as of the end of 2012).

Yahoo now operates a research and development center in Beijing where it employs nearly 400 engineers to develop personalized Internet services, mobile applications and cloud computing technologies, according to Zhang Chen, who leads the team there.

Under Alibaba's stewardship, Yahoo China has undergone several rounds of restructuring. Its original business lines included a Web portal, email, a search engine and Yahoo's instant-messaging service. Alibaba attempted - unsuccessfully - to integrate Yahoo's search technology into its e-commerce platforms. Today, Yahoo China is mainly a portal and e-mail service provider in the country. Its work force has shrunk to about 200 from more than 600 in 2005 when the companies formed their partnership.

According to the pact reached last May, Yahoo has the right to sell its remaining shares in Alibaba once the Chinese company launches an IPO.

An Alibaba IPO has been the subject of speculation since the company's Hong Kong-listed business-to-business unit went private last year as part of a company-wide restructuring. Would-be investors have noted the rapid growth and potential of Taobao.com and Alipay, although Alibaba borrowed nearly $10 billion to finance its privatization and the share buyback from Yahoo.

China Business Journal, a Beijing-based weekly, reported on Saturday that Nasdaq, the New York Stock Exchange and the Hong Kong Stock Exchange are competing for an Alibaba IPO.

Hong Kong media outlets reported that Zheng Hua, chief China representative of Nasdaq OMX Group Inc, met Alibaba executives in Hong Kong earlier this month to explore the prospects of a Nasdaq listing, although Chairman Jack Ma and Chief Financial Officer Joe Tsai weren't among those present.

On March 11, Alibaba named Executive Vice-President Jonathan Lu as CEO, replacing Ma, the company's founder.

The company had announced in January that the 48-year-old Ma would be stepping down as Alibaba's day-to-day chief but still remain chairman.

In early March, Barclays Capital's Anthony DiClemente estimated Alibaba's value at $55 billion.

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