Problem started back in May when Yahoo disclosed to the SEC that Alibaba had transferred 100% of its ownership of Alipay to a new company controlled by Alibaba CEO Jack Ma.
Yahoo mentioned it was not made aware of the asset transfer until March 31, 2011 that it "occurred without the knowledge or approval of the Alibaba Group board of directors or shareholders."
But as per the claims of Alibaba the transfer deal was discussed at several board meetings as long as three years ago.
Already troubled Yahoo shares were dropped over that week as the news continued to develop. Several rumors and doubts started to grow among the investors as according to the statement Yahoo was kept out of the loop, and investors were skeptical about the the company relationship with Chinese e-commerce giant Alibaba.
A few weeks later, at Yahoo's analyst day, executives declined to answer most questions about Alibaba. Yahoo CEO Carol Bartz said several times that Yahoo "had an agreement with Alipay that none of us were going to discuss the past, and we're sticking to that."
Then, at Yahoo's annual shareholder day in June, stakeholders slammed the company for its handling of the Alibaba situation.
The announcement of the deal seemed to please investors early Friday, as Yahoo shares rose 6% in premarket trade. But the stock reversed course once the market opened and was down 2% in late morning trading as the broader market fell following a weak GDP report.
Terms of the deal
- Under the terms of the deal, which also includes Japanese Internet firm and Alibaba investor Softbank, Alibaba will receive between $2 billion and $6 billion for an initial public offering of Alipay or any other type of Alipay liquidation.
- In addition, Alibaba Group will license some technology services and intellectual property to Alipay. In return, Alipay will pay royalties to Alibaba.
The deal is expected to close by the end of 2011 and must be approved by regulators.
JPMorgan analyst Doug Anmuth said in a note to clients Friday that he is retaining his "neutral" rating on Yahoo.
"The agreement provides a definitive range of outcomes for the eventual monetization of Alipay, while also clearing an overhang on [Yahoo] stock," he wrote.
Anmuth noted that there is "very little visibility" into a timeline for an Alipay IPO, but as a major stakeholder Yahoo "can force a liquidity event after 10 years."
The Alipay battle is hardly the first time Jack Ma, the Alibaba CEO, and Carol Bartz have butted heads. In September, Alibaba offered to buy back Yahoo's stake for about $11 billion. Yahoo declined.
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