Alibaba to Yahoo: There Wasn't a Board Vote, But We Told You So
Could Yahoo’s Asian problems get any worse?
The situation between Yahoo and its Chinese partner became even more complicated today with a carefully worded statement from the Alibaba Group stating that Yahoo knew about the transfer of its Alipay online payments unit as far back as two years ago.
While Alibaba did not address the issue of a board vote on the transaction, several sources close to the situation confirmed Yahoo’s assertion that there was no formal vote by Alibaba’s board about the spinoff of Alipay into a separate entity controlled by Alibaba CEO Jack Ma.
That said, Alibaba said it did so anyway to comply with new regulatory laws in China that require domestic ownership and in the interests of shareholders in securing the proper licenses to operate.
Said an Alibaba spokesman about the rapidly escalating feud with Yahoo over the disclosure, which the Silicon Valley Internet giant said it found out about March 31 and only told investors about yesterday:
The Alibaba Group management has taken actions to comply with Chinese law governing payment companies in order to secure a license to continue operating Alipay. The Alibaba Group board discussed at numerous Board meetings over the past three years the impending imposition of new regulatory requirements on the online payment industry, including ownership structures, as they were being developed in China, and was told in a July 2009 board meeting that majority shareholding in Alipay had been transferred into Chinese ownership. The actions taken by Alibaba Group management to comply with the licensing regulations and to ensure continuation of operations are in the best interests of the company and its shareholders. The continued operation of Alipay is essential to the preservation and enhancement of the value of Alibaba Group’s businesses such as Taobao, as Alipay is the payments platform for e-commerce in these businesses.
Them’s fightin’ words, clearly, and shows just how bad the relationship between Yahoo and Alibaba has gotten.
“It’s a toxic situation,” said one person about the Alibaba board, which includes Ma and also Yahoo co-founder Jerry Yang. “So, it came to this.”
“This” would be a giant mess, especially since Yahoo owns 43 percent of Alibaba, and a big chunk of its market valuation is made up of this and its ownership of Yahoo Japan.
That’s why Yahoo shares took a big hit yesterday and today. The stock is down another six percent today already, to just above $16.
If the back-and-forth over Alipay continues, that could spell more trouble for investors, since Yahoo’s options are essentially limited to suing itself in the form of Alibaba or negotiating a sale of those lucrative assets back to Ma at what is now a clear disadvantage.
Or finding a way to get along and negotiate an agreement, of course, which seems unlikely now.
The questions will now center around whether Alibaba’s Ma could do the spinoff legally and what Yahoo will do about it, as well as when Yahoo should have told investors.
While the company might have been legally compliant in its public filings, a transfer of Alipay out of Alibaba might have been something Yahoo investors would have wanted to know about sooner rather than later.
In addition, Alibaba said that there was some compensation to Alibaba for the Alipay transaction, without revealing the amount, although it’s a hopelessly conflicted situation since Ma is both CEO of Alibaba and owner of Alipay.
The wild card in all this is Yahoo Japan’s Masa Son, whose SoftBank entity also owns a big stake in Alibaba. He has been silent about the situation, although Yahoo referenced SoftBank in its statement yesterday about Alipay.
Yahoo has also been negotiating with Son over selling back its stake in Yahoo Japan for some time too, making the complex situation with the trio–Alibaba, Yahoo Japan and Yahoo–the corporate hairball of all time.
I have reached out to both Yahoo and SoftBank about Alibaba’s statement.
More to come, obviously…