Alipay Gets ‘Critical’ China Payment License as Yahoo Seeks Compensation
Alipay, the company at the center of the latest dispute between Alibaba Group Holding Ltd. and U.S. shareholder Yahoo! Inc., was granted an online payment license by China.
The People’s Bank of China today announced Alipay was among a group of companies that received licenses, Alibaba said in an e-mailed statement. Yahoo said this month that a Chinese company controlled by Alibaba Chairman Jack Ma acquired ownership of Alipay to expedite the license application, even though the transfer lacked approval from Alibaba’s board.
Yahoo Chief Executive Officer Carol Bartz said yesterday she is making “significant” progress in talks to ensure Alibaba is compensated for the spinoff of Alipay. Yahoo shares have tumbled 13 percent since the spinoff’s disclosure raised concern the U.S. company’s Chinese assets would lose value. Alibaba has said new Chinese rules limiting foreign ownership of payment companies prompted the reorganization of Alipay.
“Alibaba’s management has been very committed and cooperative,” Bartz said during a presentation to investors in San Jose, California. Alibaba Group is negotiating with both Yahoo and Softbank Corp. (9984), its second-largest investor.
The talks have two aims, Bartz said. The parties want to make sure that the relationship between two Alibaba units, Alipay and Taobao, “is structured to preserve the value within Taobao -- and, by extension, Alibaba,” she said. Talks also turn on making sure Alibaba is “appropriately compensated for the value of Alipay,” Bartz said.
Jerry Yang, co-founder of Yahoo and a member of the Alibaba Group board, and Tim Morse, Yahoo’s chief financial officer, flew to Asia last week for discussions regarding Alipay. Yang said the regulatory environment in China has been changing, requiring payment services to be Chinese-owned companies.
“Alibaba Group and all its shareholders have agreed that having a license is critical,” Yang said. “Alibaba Group and its shareholders need to be appropriately compensated for any transfer.”
It took Yahoo more than five weeks after learning of the spinoff to inform investors of the move. Institutional Shareholder Services Inc., a shareholder advisory firm, plans to review whether Sunnyvale, California-based Yahoo acted in a timely manner.
Yahoo’s 43 percent holding in Alibaba Group may account for as much as three-quarters of the U.S. company’s market value, said Sandeep Aggarwal, an analyst at Caris & Co. in San Francisco. Alipay may be worth $5 billion, according to Gabelli & Co.
Yahoo fell 17 cents, or 1.1 percent, to $15.98 at 4 p.m. New York time in Nasdaq Stock Market composite trading. The shares have slipped 3.9 percent this year.
Bartz, speaking at the investor conference, also said the company’s turnaround effort is progressing, including an agreement with Microsoft Corp. (MSFT) to outsource search technology. While the initial results for advertising revenue per search have been disappointing, Bartz said they are improving, and Microsoft is providing financial help during the transition.
Last year, the company projected an average long-term sales growth rate of 7 percent to 10 percent. While Yahoo is likely to fall short of that rate this year, it expects to be in that range in 2012 and 2013, Morse said.
The company also is working to get more value from another Asian asset, Yahoo Japan, Morse said.
Options include spinning it off or creating a tracking stock, he said.
“We’re pursuing some very attractive alternatives, but it’s not a quick and easy process,” he said. “We’re making tangible progress, but patience is required as we work through the process.”
--Brian Womack, with assistance from Mark Lee. Editor: Lisa Rapaport, Nick Turner, Terje Langeland
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