Concerns surfaced after a May 10 Yahoo filing that said Alibaba Group spun off the lucrative Alipay online-payments business, and then deepened the next two days amid conflicting statements from Yahoo and Alibaba over Alibaba Group’s disclosure of the transfer.
“The acute lack of clarity around the Alipay issue is calling into question the value and monetization potential of Yahoo’s Chinese assets in general,” Youssef Squali, an analyst at Jefferies & Co., wrote in a research note today.
Through its stake in Alibaba Group, Yahoo is able to benefit from rising Internet demand in China, where restrictions on Web content make it hard for U.S. companies to do business on their own. The two companies have clashed in the past over Chinese censorship rules, and investors fretted that the Alipay transfer will only add to the strain.
Yahoo, based in Sunnyvale, California, fell 62 cents, or 3.6 percent, to 16.55 at 4 p.m. New York time in Nasdaq Stock Market trading. It has lost 11 percent since May 10, when the company said the entire equity of Alipay had been transferred to a business controlled by Alibaba Chief Executive Officer Jack Ma. The spinoff, to comply with People’s Bank of China’s restrictions on foreign ownership of payment services, fueled speculation that Yahoo’s stake would be worth less without the payment unit.
Alibaba Group, Yahoo and Softbank Corp. (9984), another part-owner of Alibaba Group, are in talks to ensure that Alibaba Group is compensated for the transfer. Alibaba Group and Yahoo, its biggest shareholder, have issued differing statements over how early Alibaba Group disclosed its plans. Investors are looking for assurances that Yahoo will continue to benefit from its holdings in China, Squali said.
Alibaba Group was compensated for the spinoff, a Hong Kong-based Alibaba spokesman, John Spelich, said by phone today. He declined to disclose the compensation amount.
A transfer of Alipay equity in August 2010 wasn’t disclosed to Yahoo and Alibaba’s second-biggest investor, Softbank, until March 31, the U.S. shareholder said yesterday. Alibaba today said its board, which includes Yahoo co-founder Jerry Yang and Softbank President Masayoshi Son, was told in July 2009 that the majority of Alipay’s shareholding was transferred to a Chinese owner.
Yahoo later stood by its May 12 statement that it was informed of the transfer in March.
“Yahoo is in active and constructive negotiations with Softbank and Alibaba Group to preserve the integrity of this investment and maximize shareholder value,” Yahoo said today.
Alibaba was paid about 300 million yuan ($46 million) for Alipay by a company controlled by Ma, Caing.com reported today, citing public company registry data. Alibaba’s Spelich declined to comment on the report.
Alipay has a value of $5 billion, Brett Harriss, an analyst at Gabelli & Co., wrote in a report yesterday.
The action over Alipay, taken to comply with Chinese regulations on online payment services, was “in the best interests” of Alibaba and its shareholders, Spelich said today. It’s “essential” to continue Alipay’s operations in order to support other Alibaba businesses such as Taobao.com, he said.
Taobao.com is China’s biggest online retailer. Alibaba Group also owns Alibaba.com, a commerce site for businesses, and operates the local Yahoo website in China.