Yahoo to pay $1B for stake in China's Alibaba

'This is Yahoo getting much bigger in China,' says a Yahoo exec

Yahoo Inc. plans to take a significant stake in Corp. as part of a strategic partnership between the two companies, a company official said today in Beijing.

As part of the deal, Yahoo will pay $1 billion in cash for a 40% stake in its partner. In addition, Yahoo will transfer all of its Chinese businesses, which will continue to operate under the Yahoo brand, to Hangzhou, China-based "This is Yahoo getting much bigger in China," Daniel Rosensweig, the company's chief operating officer, said at a news conference in Beijing.

Based in eastern China, privately owned operates the online marketplace and the auction Web site, which competes with eBay Inc.'s China auction site.

The deal gives Yahoo 35% of the Internet company's voting shares and makes Yahoo the largest outside investor in Alibaba, the companies said. Previously, the largest investor in Alibaba had been Tokyo-based Softbank BB Corp.

The partnership between Alibaba and Yahoo is unique among Internet companies, said Jack Ma, the chairman and CEO of Alibaba. No other company has been able to successfully combine portal, e-commerce, search and communication offerings, he said.

Sunnyvale, Calif.-based Yahoo has struggled to establish a leading presence in China, where its best efforts have been unable to match the success of top Chinese portal operators such as Sina Corp. and Inc. At the same time, many of Yahoo's biggest competitors from overseas, such as eBay and Google Inc., have stepped up their investments in China in recent years.

Nevertheless, Yahoo's decision to team up with Alibaba wasn't made because the company couldn't compete in China, Rosensweig said. "We don't look at this as Yahoo not being able to succeed on its own in China," Rosensweig said. "We look at this as an opportunity to get much bigger much faster.

"It's very similar to the way Yahoo has been successful in Japan by finding a great local partner," he said, referring to Yahoo Japan Corp., which was set up as part of a partnership with Softbank. Yahoo has done well in Japan, even forcing rival eBay to pull out of the market when it found itself unable to compete against Yahoo Japan's auction site.

Duncan Clark, managing director of consulting company BDA China Ltd., welcomed the Yahoo-Alibaba deal. "I salute the boldness of it," he said.

Teaming up with Alibaba gives Yahoo a "trusted lieutenant" in Ma, who is widely respected among his peers in China, Clark said. "He's someone with street cred."

Despite the shared connection with Softbank, Alibaba and Yahoo executives credited the close personal relationship between Ma and Jerry Yang, a co-founder and chief yahoo at Yahoo, with helping to bring the two companies together. To highlight the importance of the relationship, the news conference was conducted against a backdrop that included a large photograph of Ma and Yang sitting together on the Great Wall of China.

In the years since that photo was taken in the late 1990s, Yang and Ma continued their friendship, and the idea of a strategic partnership was first raised during a meeting between the two executives at Pebble Beach, Calif., said Porter Erisman, a spokesman for Alibaba.

"This kind of opportunity is very rare, If you don't grasp it you'll regret it. ... I've been waiting seven years for this opportunity," Ma said, referring to the visit he made with Yang to the Great Wall.

Copyright © 2005 IDG Communications, Inc.

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