Alipay, the payments service of Chinese e-commerce giant Alibaba Group, just got its licence to operate in China. Magically, this event which no doubt greatly increases the company’s value, happened right after Alipay was spun out of Alibaba, which includes Yahoo and Softbank as big shareholders, and given to an entity controlled by Alibaba founder Jack Ma.
Yahoo feels screwed that this happened and that Alibaba (and therefore by extension Yahoo) doesn’t seem to be getting money in return for spinning off Alipay. Alibaba and Alipay argue that Alipay had to be spun out because of Chinese regulations on foreign ownership of payments services. And there is a war of words right now between Yahoo and Alibaba over whether and how Yahoo was notified or should have been notified (and in turn, on how Yahoo should have disclosed that to its shareholders). The weeds are deep and the story evolving.
But the bottomline of the saga is this:
- On the Yahoo side, many investors own Yahoo not for its (listless) US portal business but for its huge Asian assets like Alibaba and Yahoo Japan. These assets are hugely valuable but are in limbo for various reasons (Alibaba because it’s private, and Yahoo Japan, which is listed in Tokyo, because Yahoo would take a huge tax hit if it sold its stake).
- On the China side, this shows what it’s like to do business in China. It’s not as blatant as Russia or even Africa, but stuff like that happens. Assets get shifted around to new entities, and somehow the US company in the deal is always the sucker. Caveat emptor.