The Good, the Bad and the Time-Consuming: Yahoo Pushes to Settle Alibaba Dispute Before Earnings, But Don’t Hold Your Breath
After picking a noisy fight in June with its Chinese partner Alibaba Group, Yahoo has made certain at several public junctures since then to loudly stress that talks to settle the differences are progressing.
But that doesn’t mean closure of such a deal, which is what the Silicon Valley Internet giant has been hoping to have happen before it announces its second quarter earnings next Tuesday.
In fact, said several sources close to the situation, such a settlement is now unlikely without some major push this weekend.
Yahoo’s interest in getting the issue off Wall Street’s radar makes sense, of course, since investors are focused on Yahoo’s trouble related to its lucrative Asian assets. One big hedge fund shareholder, David Einhorn of Greenlight Capital even sold off his shares last week due to the issue.
In a letter to investors, Einhorn said the kerfuffle, which has hit Yahoo’s stock hard, “wasn’t what we signed up for.”
That’s why Yahoo has been working hard to come to terms regarding the sudden spinoff of Alibaba’s Alipay payments unit in three-way talks that have been ongoing with Alibaba and its other large shareholder, SoftBank of Japan.
But the latest slowdown in talks, sources said, appears to be due to SoftBank, which is seeking more lucrative remuneration after Alibaba’s Jack Ma moved Alipay, its online payment service, into a separate entity controlled by him.
Ma has insisted he did it to obtain important licenses from Chinese regulators, who had wanted less foreign ownership of online banking companies in the country.
Yahoo, which owns 43 percent of Alibaba, initially got into a heated public spat with Alibaba over the fact that the transaction did not have board approval and, more importantly, that it seemed to mean it owned none of Alipay.
Thus, how to value Alipay — which is not profitable and does not really have any business outside of serving as the payments service Alibaba’s Taobao commerce site — is at the heart of the Yahoo-Alibaba-SoftBank talks.
It is an especially complex issue, since the future value of Alipay must be determined and what it will be worth at some point years from now is open to a wide variety of interpretations.
Adding more difficulty onto the complicated talks are the still tense relationships among and between Alibaba, Yahoo and SoftBank, which have been interconnected and interlocked for many years.
All three parties have declined to comment on the settlement talks.
That’s probably a good idea, given their contentious history.
“It’s like that three-way shoot-out scene from ‘The Good, the Bad and the Ugly,’” said one observer. “They have always had their guns pointing at each other and all want the prize, but they now have to find a way to get along.”
I like the analogy, so here is a funny Lego version of that famous movie scene: