Alibaba Says Alipay Move Was ‘Lawful’ After Yahoo Says It Was Blindsided

Alibaba Group Holding Ltd. Chairman Jack Ma said the spinoff of the Alipay online payment business is “lawful” and “transparent,” after biggest shareholder Yahoo! Inc. claimed it wasn’t consulted on the transfer.

“We are always committed to ensure our operations are 100 percent lawful,” Ma said today in Hong Kong. “The matter of Alipay is not settled yet” amid ongoing negotiations with Yahoo and Softbank Corp. (9984), Alibaba’s second-biggest shareholder, on the post-transfer commercial arrangements, Ma said.

Yahoo, owner of the biggest U.S. Web portal, this week said it wasn’t informed until March 31 about an August 2010 transfer of Alipay equity to a vehicle outside of Alibaba.

Ma said today Alibaba’s board discussed for three years the need to comply with restrictions on foreign ownership of payment services in China, which prompted the reorganization of Alipay, the nation’s biggest online payment service.

“We are transparent in all we do,” Ma said at the shareholders meeting of Alibaba Group unit Alibaba.com Ltd. (1688) “For the management, there was only one option open to us, and we have done the right thing.”

Dana Lengkeek, a spokeswoman at Yahoo, didn’t immediately reply to an e-mail seeking comment outside of office hours today. Yahoo is in talks with Alibaba Group and Softbank to “preserve the integrity of this investment and maximize shareholder value,” the company said yesterday.

Shares Decline

Yahoo shares have declined 11 percent in Nasdaq Stock Market trading since May 10, when the Sunnyvale, California- based company disclosed the entire equity of Alipay had been transferred to a company controlled by Ma, who is also chief executive officer at Alibaba Group. Alipay has a value of $5 billion, Gabelli & Co. analyst Brett Harriss wrote in a May 12 report.

Through its stake in Alibaba Group, China’s biggest e- commerce company, Yahoo is able to benefit from rising Internet demand in the Asian nation, where restrictions on Web content make it hard for U.S. companies to do business on their own.

It’s “inappropriate” for Internet companies in China to have high foreign ownership given the increasing regulations on overseas investment rules in the industry, Alibaba Group Chief Financial Officer Joseph Tsai said at the meeting today. Alibaba has raised this issue with Yahoo, he said.

Buyback Talks

Tsai and his Yahoo counterpart Tim Morse held talks last year for Alibaba to buy back some of the shares held by the U.S. company. The negotiations ended in June 2010, though Alibaba is “always interested” in such a buyback, Tsai said.

“We think, in the future, an opportunity for the buyback will arise,” Tsai said. Still, the breakdown of the buyback negotiations last year caused a “loss of confidence” in Yahoo, Ma said today.

Alibaba yesterday 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.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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