Last updated: May 13, 2011 11:45 pm

Dispute saps Yahoo’s hold over Alibaba

An escalating war of words between Alibaba Group, the Chinese e-commerce powerhouse, and Yahoo, its largest shareholder, has called into question the US internet group’s ability to maintain its grip on its most valuable asset.

The dispute, triggered by the sale of an Alibaba-owned online payments business, has also underscored the risks of minority ownership of companies in the world’s largest internet market.

On Friday, Alibaba disputed a complaint by Yahoo on Thursday that the transfer of Alipay to a group controlled by Jack Ma, Alibaba’s chief executive, had transpired without notice to or approval by the Alibaba board, on which Yahoo has a seat.

Alibaba also rejected Yahoo’s account of the timing of the transfer, which the US company said had occurred last year, with notice to Yahoo given just six weeks ago.

The Alibaba directors were “told in a July 2009 board meeting that majority shareholding in Alipay had been transferred into Chinese ownership”, Alibaba said.

A person close to Yahoo said the 2009 change was explicitly provisional and it was clear that it would have to be formalised later.

Both sides agree that the shift was needed to comply with new Chinese regulations on local ownership of some payment processors.

But Yahoo, which owns 43 per cent of Alibaba, said that it and fellow shareholder Softbank, which has 30 per cent, were still trying to negotiate compensation for Alibaba from the move.

The terms of Yahoo’s 2005 investment in Alibaba require board approval for the disposal of assets worth $10m or more, and some shareholders value Alipay in the billions of dollars.

Yahoo acquired its stake in Alibaba when it sold its Yahoo China arm to the group. But people close to the situation said Alibaba management and Yahoo were no longer on speaking terms.

The Alibaba board consists of two representatives of management and one director each representing Yahoo and Softbank.

Mr Ma has tried several times to negotiate a deal that would allow Alibaba to buy Yahoo’s stake back, but failed. This has wrecked his relationship with Carol Bartz, Yahoo’s chief executive.

People familiar with the situation said this poisoned relationship had made the Alibaba Group board ­dysfunctional.

Yahoo’s shares have fallen more than 10 per cent since Wednesday.

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