Yahoo Inc. (YHOO) and Chinese e-commerce firm Alibaba Group Holding Ltd. have resolved their dispute over the abrupt transfer of Alibaba's online-payments business Alipay, to a new entity controlled by its chief executive, Jack Ma.
Earlier in May, Yahoo had accused Alibaba of transferring the ownership of Alipay to a company owned by Jack Ma without any intimation or board approval. As the owner of around 40% of Alibaba's stake, Yahoo found this move unacceptable. Alibaba countered the allegation citing the transfer of Alipay as a Chinese regulatory obligation that restricts foreign ownership in e-payment companies.
Yahoo, Alibaba and Japanese Internet company Softbank Corp., which is also a major investor in Alibaba, have now settled the issue unanimously. The trio announced a deal that guarantees Alibaba payment of at least $2 billion in the event of a public offering of Alipay or any other liquidity event. The deal was structured in part to preserve the value of Taobao, the Alibaba-owned e-commerce company that accounts for the vast share of Alipay's revenue. Under the agreement, Alipay will continue to provide payment-processing services to Taobao on preferential terms. Alibaba will also license patents and technology to Alipay, for which Alipay will pay royalties.
Though the agreement resolves a heated controversy, Yahoo’s shares fell 3.0% to $13.10 on the Nasdaq Stock Exchange. Yahoo's stake in Alibaba, which controls several e-commerce sites, is considered as one of its most valuable assets, along with its 35% ownership in Yahoo Japan. But now, investors have realized that Yahoo’s fate in Asia is completely in the hands of Jack Ma. They remain concerned that Alibaba’s actions in the future would dilute the value of Yahoo's stake in the Asian company. Moreover, knowing China’s strict regulatory environment, the analysts do not expect the deal to be as lucrative as Yahoo hoped.
Investors are also wary of the competitive pressure that Yahoo is under. The company is up against the likes of Google Inc. (GOOG), Microsoft Corp. (MSFT) and Facebook Inc., the world’s most popular social-networking site.
We are maintaining our Neutral rating over the long term (6–12 months) on Yahoo. Currently, the stock carries a Zacks #3 Rank, indicating a short-term Hold recommendation.
GOOGLE INC-CL A (GOOG): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis Report
YAHOO! INC (YHOO): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment