Alibaba fears for Yahoo

Yahoo! Inc had its biggest decline in almost a year amid concern that its stake in Alibaba Group Holding Ltd may lose value after the Chinese company ceded ownership of its online-payment business.

The payment business of Alibaba Group, which is about 40 per cent owned by Yahoo, was restructured so that its Alipay unit is now controlled by a separate company, according to a filing yesterday. Yahoo said the shift — to a company mostly owned by Alibaba Group Chief Executive Officer Jack Ma — was necessary to expedite getting a license for Alipay.

Yahoo, owner of the largest US Web portal, is using its stake in Alibaba Group as an entry into the Internet market in China. The transfer may diminish the value of Yahoo’s holding in Alibaba, Jordan Rohan, an analyst at Stifel Nicolaus & Co in New York, wrote in a research note. In a worst-case scenario, profit from the payment business could be diverted to the new entity, away from Alibaba Group and Yahoo, he wrote.

“Alipay is a valuable asset,” Rohan wrote. “Investors valuing Yahoo on its sum of the parts will have to remove Alipay from the equation.”

Yahoo declined $1.35, or 7.3 per cent to $17.20 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have advanced 3.4 per cent this year.

License in China
Alipay is required to get a license from the People’s Bank of China to operate its payment business, and was restructured as a Chinese domestic company to speed up getting the license, Dana Lengkeek, a spokeswoman for Sunnyvale, California-based Yahoo, said in an e-mail.

Yahoo and Softbank Corp, another Alibaba Group shareholder, are in talks with Alibaba Group’s management about the terms of the restructuring and commercial arrangement related to Alipay, she said.

Alibaba’s other assets include Taobao, an online-shopping site, and Ltd an e-commerce site for businesses.

Yahoo stock got a boost on May 2 after Greenlight Capital Inc said it bought a stake, citing Yahoo’s investment in the Chinese Internet company and other Asian assets.

Yahoo Japan Corp and, the publicly traded unit of Alibaba Group, make up about $8 per share alone in Yahoo’s value, Greenlight wrote in an April 29 letter to clients.

Yahoo’s stake in Alibaba ultimately may be worth as much as the company’s entire current market value, wrote Greenlight, which is run by David Einhorn.

Gene Munster, an analyst at Piper Jaffray & Co in Minneapolis, said in a note he doesn’t expect the shift in Alipay’s ownership to have a negative effect on Yahoo, and the stock’s drop creates an opportunity to buy the shares.

“Alipay was spun out due to regulatory reasons around foreign ownership,” Munster wrote. “We expect Yahoo to be compensated for the spun out asset of Alipay.”


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