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Yahoo Investors Sue Over Alibaba Restructuring of Payment System

Yahoo! Inc.
Yahoo! Inc. signage is displayed on the company's headquarters in Sunnyvale, California. Photographer: Tony Avelar/Bloomberg

Aug. 9 (Bloomberg) -- Yahoo! Inc. shareholders, claiming they were misled about the restructuring of the online payment business of China’s Alibaba Group Holding Ltd., sued the owner of the biggest U.S. Web portal.

The investors, in a complaint filed yesterday in federal court in San Francisco, claim the search-engine provider failed to tell them before May 10 that its $1 billion investment in Alibaba was “severely impaired” by the transfer of the payment business, Alipay, to a closely held company controlled by Alibaba Chairman Jack Ma.

Yahoo management was informed no later than March 31 about the restructuring, which reduced the value of the Sunnyvale, California-based company’s investment in Alibaba by billions of dollars, according to the complaint.

Chinese regulations that precipitated the restructuring were anticipated in 2009, requiring “Yahoo or Alibaba to divest themselves of Alipay but Yahoo had failed to develop a strategy to recover the value it had in Alibaba,” according to the suit.

Alibaba, based in Hangzhou in eastern China, said July 29 that its two biggest shareholders, Yahoo and Softbank Corp., Japan’s third-biggest mobile carrier, agreed to a compensation deal that may result in Alibaba receiving as much as $6 billion from Alipay. The agreement ended a four-month dispute between Alibaba, China’s biggest e-commerce company, and foreign shareholders over the spinoff of Alipay.

The sale of the online payment business to Ma’s company last year lacked the approval of the board and was only disclosed to investors in March, Yahoo said previously.

The lawsuit was filed on behalf of the Twin City Pipe Trades Service Association based in Saint Paul, Minnesota.

Dana Lengkeek, a Yahoo spokeswoman, had no immediate comment yesterday.

The case is Twin City Pipe Trades Pension v. Yahoo! Inc., 11-03870, U.S. District Court, Northern District of California (San Francisco).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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