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Yahoo Must Continue Bartz’s Alibaba Strategy, Analysts Say

Tim Morse, CEO of Yahoo!
Yahoo! Inc.'s new chief executive officer, Tim Morse stands for portrait in this handout photo taken on Monday, June 29, 2009. Photographer: Richard Morgenstein via Bloomberg

Yahoo! Inc.’s new chief executive officer should keep the strategy of Carol Bartz, fired yesterday, in resisting attempts by Alibaba Group Holding Ltd. to end their venture, analysts said.

“Yahoo is not desperate for cash, so for the new CEO to give up the stake in Alibaba for anything less than a fair price won’t go down well with Yahoo shareholders,” said Michael Clendenin, managing director at research company RedTech Advisors in Shanghai. “And it won’t keep him around for long.”

Disposing of the Chinese company’s shares would deprive Yahoo of the benefits from a possible listing of Alibaba’s Taobao, China’s biggest online shopping site, Clendenin said. Yahoo started the search yesterday for a successor to Bartz, who turned down Alibaba’s bids to buy back stock held by the U.S. shareholder, saying she wanted “the most value” from a deal.

Renewed efforts by Alibaba to buy back shares held by Yahoo, its largest investor, may hamper the new CEO’s attempts to repair a relationship that further soured over a dispute about the ownership of the Alipay online payment business this year.

In 2005, Alibaba Group sold a stake of about 40 percent to Yahoo for $1 billion and ownership of Yahoo’s Chinese unit. The Hangzhou, eastern China-based company now operates e-commerce businesses including and, in addition to Yahoo’s local website.

‘Tremendous Dilemma’

“It’s a tremendous dilemma,” said Mark Natkin, managing director at research company Marbridge Consulting Ltd. in Beijing. “If the company has great prospects, you don’t really want to sell out. So it’s a question of how much pain you have to endure going forward.”

Yahoo would want to stay invested in Alibaba until one or more of its units do initial public offerings, he said.

Yahoo’s stake in Alibaba is worth $11.45 a share, according to estimates by Thornburg Investment Management last month. Yahoo rose 70 cents, or 5.4 percent, to close at $13.61 on the Nasdaq Stock Market.

John Spelich, a spokesman for closely held Alibaba, declined to comment on Bartz’s leaving. Lisa Tam, a spokeswoman at Yahoo in Hong Kong, declined to immediately comment.

Alibaba expects there to be more opportunities for it to buy back shares held by Yahoo in the future, Joseph Tsai, Alibaba’s chief financial officer, said in May.

Falling Sales

Bartz, 63, whose tenure was marked by falling sales and lost share to rivals such as Google Inc. and Facebook Inc., was terminated by Chairman Roy Bostock by telephone. The Sunnyvale, California-based company announced a strategic review aimed at helping revive growth at the most-visited U.S. Web portal, and said Chief Financial Officer Tim Morse will be interim CEO.

Taobao, wholly owned by Alibaba, accounts for about 90 percent of China’s consumer-to-consumer e-commerce market, which may generate 628 billion yuan ($98 billion) of transactions this year, 44 percent more than a year earlier, according to RedTech’s Clendenin.

Alibaba reorganized Taobao in June. Alibaba Chief Executive Officer Jack Ma said at the time the group “won’t rule out the possibility” of going public, and Spelich said today he had no update about those comments.

Alibaba ended talks with Yahoo on the share buyback in June 2010, Spelich said last year. The breakdown in talks caused a “loss of confidence” in Yahoo, Ma said in May.

Compensation Agreement

In July, Alibaba said it reached an agreement with Yahoo and another shareholder, Japan’s Softbank Corp., over compensation accruing to the spinoff of the Alipay affiliate, China’s most-used online-payment operator. The accord ended a four-month dispute centered on the 2010 transfer of Alipay to a private company owned by Ma, a transaction that Yahoo said lacked board approval.

“The damage to the relationship is already done,” said RedTech’s Clendenin.

Softbank spokesman Takeaki Nukii declined to comment when reached by phone today.

Bartz’s departure will only have a positive impact on Alibaba if Yahoo is able to find a CEO who can revive the company to its former stature, said Allen Weiner, an analyst at research company Gartner Inc.

“A new leader who has that sort of vision would be a person who understands the power of a global footprint and how to make the pieces of an international media company work together,” Weiner said.

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