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Alibaba transferred Alipay ownership without Yahoo approval

By Michael Kan
May 13, 2011 05:50 AM ET

IDG News Service - Yahoo said that Chinese e-commerce giant Alibaba Group transferred ownership of its online payment service Alipay without its knowledge or approval, a sign of continuing tension between the two companies.

Yahoo owns 43% of Alibaba Group as a result of a $1 billion deal made in 2005. But the value of that investment could be eroded now that a key part of Alibaba Group's business has been moved out of the company.

In the regulatory filing made earlier this week, Yahoo revealed that control over Alibaba Group's online payment service Alipay had been completely transferred to a Chinese company owned by Alibaba's CEO Jack Ma. The restructuring was needed so that Alipay could obtain a license from authorities in China, which is requiring third-party online payment services of nonfinancial institutions to be domestically owned.

But on Thursday, Yahoo released a statement saying the company, along with Japan's Softbank, another major Alibaba shareholder, only learned of the restructuring at the end of March, months after the transfer began in August of last year. Yahoo said the decision was also made without approval from Alibaba Group's board of directors, which the company and Softbank both sit on.

Alibaba Group Vice President John Spelich, though, said that Alibaba Group's board had discussed the new requirements on China's online payment industry at numerous board meetings in the past three years.

Yahoo said in a statement it continues to work closely with Alibaba and Softbank "to protect the economic value for all interested parties." The companies are currently holding discussions involving the terms of the restructuring.

The transfer of Alipay highlights the ongoing disconnect between Yahoo and Alibaba Group. Both parties originally had high hopes with the investment in Alibaba back in 2005, that transferred all of Yahoo's Chinese properties to the e-commerce giant. But the relationship has since deteriorated because of clashes over business issues, with Alibaba now believing it has nothing to gain from the deal.

Alibaba even went as far as to hold negotiations last year with Yahoo to get it to sell off its stake in the company. But those talks failed.

"The relationship soured long ago," said Mark Natkin, managing director of Beijing-based Marbridge Consulting. He added that there was no apparent reason for Alibaba to neglect notifying Yahoo about the transfer earlier. "It's not a sensitive matter, and as such, one would expect that Alibaba would notify its shareholders," he said.

The fallout from this move could leave investors with the perception that China is "too unpredictable of a market, and too difficult to navigate," he added.

"Right now we are hearing that Yahoo, Softbank and Alibaba are in discussion about how the two foreign partners can be compensated," Natkin said. "But again, it's coming after the fact in negotiations where the foreign partners don't seem to have much leverage."

Alibaba's Alipay currently ranks as China's largest Internet payment service, with a 51% market share, according to Beijing-based research firm Analysys International. Alipay's dominance is fueled in part by Alibaba's e-commerce sites like Taobao.com, China's largest online retailer.

Reprinted with permission from IDG.net. Story copyright 2014 International Data Group. All rights reserved.
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