Date:01/08/11

Yahoo, Softbank, Alibaba settle on Alipay transfer

Yahoo Inc., SoftBank Corp. and Alibaba Group resolved their dispute over the abrupt transfer of the online-payments company Alipay to a new entity controlled by Alibaba Chief Executive Jack Ma, ending a public spat between Yahoo and Alibaba that appeared to get testy at times.The deal ensures Alibaba, which is 40% owned by Yahoo, will participate in Alipay's future profits but limits the amount of money it could receive in a sale or initial public offering of the business. Softbank also is a major investors in Alibaba.
The deal was structured to preserve the value of Taobao, the Alibaba-owned e-commerce company that accounts for the vast share of Alipay's revenue, and ensure "that Alibaba group is appropriately compensated for the value of Alipay," Yahoo Chief Financial Officer Tim Morse said on a conference call with analysts.In May, Yahoo disclosed that Alibaba had transferred ownership of Alipay to a company owned by Alibaba CEO Ma without seeking board approval or notifying the U.S. company. Yahoo said it was blindsided by the move, while Alibaba said Alipay was transferred to Chinese ownership to make sure it is among the first wave of companies licensed by China to be online-payments companies.
Alibaba Chief Financial Officer Joe Tsai defended the transfer decision Friday."If you own 100% of a business that doesn't have a license to operate, that's 100% of zero," he said. Under the deal announced Friday, Alipay will pay royalties and software technology services fees and a 49.9% share of its pretax income to Alibaba. In addition, Alibaba would receive between $2 billion and $6 billion in proceeds from any initial public offering or "other liquidity event" involving Alipay.The placement of a cap on how much Alibaba could receive from an Alipay deal surprised some. Yahoo's Morse explained,"When you have a $2 billion floor, or guaranteed minimum payment, it kind of makes sense that there's a call to it as well." Yahoo shares declined 2.1% to $13.22. The stock has dropped about 22% since first disclosing the transfer. Alipay has been considered a valuable asset for Yahoo, and some investors--such as famed hedge-fund manager David Einhorn of Greenlight Capital--have argued Yahoo's stake in Alibaba could be "ultimately worth Yahoo's entire current market value."The deal will continue to see Taobao receive "very preferential" payment terms from Alipay, Alibaba's Tsai said. Growth in Alipay's profits relies largely on its ability to boost its nascent business of processing payments for companies other than Taobao, Tsai said, noting that Alipay's non-Taobao revenue was less than $60 million last year and that Alipay is only marginally profitable.
As expected, the agreement allows Alipay to continue to provide payment-processing services to Alibaba and its e-commerce unit Taobao on preferential terms. Alibaba will provide licensing of intellectual property and technology to Alipay. Analysts often compare Taobao to eBay.com, the U.S.-based auction site run by eBay Inc., and Alipay to PayPal.

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