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March 19, 2008 12:53 am
Alibaba, the Chinese internet company part-owned by Yahoo, is in late-stage talks with a group of investors to raise the money to try to buy back the multi-billion dollar stake, should Yahoo eventually be acquired by Microsoft.
Alibaba has already lined up two lead investors to back a buy-out and is preparing to enter formal discussions with a wider investment group later this week, according to one person familiar with the situation.
The investors include a Chinese sovereign wealth fund, this person said, adding: “foreign involvement is viewed by government and consumers as undesirable.” A buy-out would also buttress the position of Alibaba founder Jack Ma, already has day-to-day management control of the group.
The possibility of a buy-out would only be triggered if Microsoft succeeds in its pursuit of Yahoo. A shareholder agreement gives a first right of refusal to the other investors should one of the shareholders try to sell its stake.
Even then, Alibaba could find itself competing with Softbank, the Japanese company that is also a substantial shareholder, to buy up the stake. However, increasing its investment in China might take a back-seat for Softbank, which would also face the bigger question of what to do about Yahoo’s 33 per cent stake in Yahoo Japan, a joint venture between the US and Japanese concerns that is currently valued at more than $9bn.
Yahoo became the largest shareholder in Alibaba in 2005 as part of a deal that saw it merge its Yahoo China portal into the private internet group. It currently holds 39 per cent, with Softbank owning around 28 per cent and the management team led by Mr Ma with 33 per cent.
Arriving at a value for Yahoo’s stake could prove difficult. In a regulatory filing on Tuesday, the US company said it has a 28 per cent interest in Alibaba’s listed subsidiary, the e-commerce site Alibaba.com, which is currently valued at $3.2bn. Alibaba also controls a number of private ventures, including the Taobao auction business and Alipay, an online payments service.
The shareholder agreement provides for Yahoo’s stake to be offered to the other shareholders at the same price it would be sold to a third party. However, since a Microsoft acquisition of all of Yahoo would not put an official arm’s length valuation on the Alibaba assets, arriving at a price could lead to arbitration.
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