Political considerations may make it difficult if not impossible for Alibaba to take over Yahoo. Yahoo has hundreds of millions of email accounts, billions of pieces of data on US citizens’ Internet browsing activity, and millions of American’s credit card data and payment information. It is hard to see how in the current political environment CFIUS (The Committee on Foreign Investment in the United States) and/or Congress would not raise objections to the takeover of an American Internet icon, even a flailing one, by a Chinese firm. Remember, Jack Ma’s excuse for expropriating Alipay was that payment data is a national security issue.
Even if Jack Ma were able to buy Yahoo he would likely face operational challenges beyond fixing the current mess. For example, would most users feel comfortable having their data in the hands of a Chinese company? Competitors would probably relish the opportunity to market against Yahoo’s new overlords.
The more likely outcome is that Alibaba works with Silverlake and other firms in a joint bid that gives Jack Ma the China and perhaps Asia assets but little to no ownership in the US and possibly rest of the world (ROW) entity.
No US firm could buy a big Chinese Internet firm. The Yahoo-Alibaba deal happened when the regulators were not paying attention and Alibaba was small and almost irrelevant in the consumer Internet. I imagine some in Congress might ask if a US firm can’t do this kind of a deal in China then why should a Chinese firms be able to do one in the US?
Is Jack Ma really moving to the US to work on a deal with Yahoo? Or is he planning to launch an English version of Taobao with the goal of killing eBay ($EBAY)?
UPDATE: Owen Fletcher of Dow Jones has just published Alibaba’s Interest In Buying Yahoo To Be Latest Test Of China Inc’s Overseas Ambitions. The article questions whether a deal could be approved in the US:
Still, analysts and lawyers said any potential deal would likely get a close look by U.S. regulators because of the sensitivity of personal data on the Internet. They said while a takeover by Alibaba of Yahoo isn’t likely to raise anti-trust issues, given the size and amount of competition of the Internet space in the U.S., national security concerns are another matter.
“One potentially big question mark would be whether the proposed deal would be viewed as having national security implications under CFIUS (Committee on foreign investment in United States),” said Neil Torpey, chair of the Hong Kong office at U.S. law firm Paul Hastings LLP, which specialises in corporate law including capital markets and M&A.
“While it isn’t obvious that Yahoo’s business is critical to U.S. national interests, some parties may not want to see such a heavily-used U.S.-based web site acquired by a non-US party, and others might raise a CFIUS issue purely for political purposes. If the political factor becomes part of the calculation, it’s very hard to predict what the outcome might be.”
Fletcher quotes me as saying: “Don’t you think a lot of users might be freaked out?” said Bill Bishop, a Beijing-based investor who watches the China Internet. “As messed up as Yahoo is, it’s an icon” for the U.S. Internet. END UPDATE]
Full disclosure, I own shares in Yahoo.
- China’s Internet: The Invisible Birdcage
- Do Most Chinese Internet Firms Have A Technically Illegal Corporate Structure?
- In China, Foreign Internet Investors Reassess Contracts-WSJ