Alibaba Group Holding Ltd. spun off its Alipay online-payment business to a different company without the knowledge or consent of its board or shareholders, Yahoo! Inc. said.
Yahoo and Softbank Corp. (9984), owners of stakes in Alibaba Group, didn’t learn until March 31 of the transfer, which happened in August, Yahoo said in a statement yesterday. Alibaba shifted ownership of Alipay to a company mostly owned by Jack Ma, chief executive officer of Alibaba Group, to comply with Chinese restrictions on foreign ownership of payment services, Yahoo said in a May 11 regulatory filing.
By owning about 40 percent of Alibaba Group, Yahoo benefits from rising Internet demand in China, where restrictions on Web content make it hard for U.S. companies to do business alone. The transfer raised concern that Alibaba Group will be worth less without the payment business, weighing on Yahoo shares. It also may worsen relations between Yahoo and Alibaba, already strained by disagreements over censorship rules in China.
“It’s generally a bad precedent when you’re finding out the information after it’s already done,” said Kerry Rice, an analyst at Wedbush Securities Inc. in Los Angeles, who rates Yahoo “underperform” and doesn’t own it. “It’s pretty clear that Jack did this without telling Yahoo.”
Alibaba spokesman John Spelich today said he couldn’t immediately comment on Yahoo’s claim that the board wasn’t notified of the change in advance. Spelich yesterday said the change was to comply with People’s Bank of China’s restrictions on foreign ownership of payment services.
Yahoo, based in Sunnyvale, California, dropped as much as 7.3 percent in extended trading after the statement was released. It had slipped 3 cents to $17.17 at 4 p.m. New York time on the Nasdaq Stock Market yesterday.
Yahoo said it and Softbank are in discussions with Alibaba to ensure that Alibaba Group is compensated for the loss of Alipay.
“Yahoo continues to work closely with Alibaba and Softbank to protect economic value for all interested parties,” Yahoo said in yesterday’s statement. “We believe ongoing negotiations among all of the parties provide the best opportunity to achieve an outcome in the best interest of all stakeholders.”
Alipay is required to get a license from the People’s Bank of China to operate its payment business, and was restructured as a Chinese domestic company to speed up getting the license, Dana Lengkeek, a spokeswoman for Yahoo, said May 11.
Still, making the transfer without the approval of the board or the shareholders “raises all kinds of fiduciary duty issues,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
Yahoo Japan Corp. and Alibaba.com, the publicly traded unit of Alibaba Group, make up about $8 per share alone in Yahoo’s value, Greenlight Capital Inc. wrote in an April 29 letter to clients. Yahoo’s stake in Alibaba ultimately may be worth as much as the company’s entire current market value, wrote Greenlight, which is run by David Einhorn.
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