Saturday, May 28, 2011
The news bolsters Alibaba Chief Executive Officer Jack Ma's contention Alipay needed to go private in order to quickly receive the license required under new Chinese regulations. Ma, founder of Alibaba, the largest online retail and payment group in China, transferred Alipay out of the publicly held Alibaba to a privately held company he owns. Ma always claimed the move was made to meet the requirements of the new licensing process. Yahoo!, a major investor in Alibaba with a 39 percent share, says it was not informed prior to Ma taking Alipay private.
Alipay Chief Executive Officer Lucy Peng said after the decision, "We are pleased that the People's Bank of China has given clarity to the regulatory framework of the payments industry. We will continue to serve our customers by focusing on product innovation, technology capability, and security, while ensuring full compliance with regulatory requirements."
It's not clear if Alibaba and Yahoo! have resolved their differences but both companies released statements in May saying talks about reimbursing stockholders for the privatization of the online payment company Alipay are moving forward.
Yahoo! CEO Carol Bartz reported at an annual analysts' meeting May 25 the company is progressing its negotiations for compensation after Alibaba's loss of Alipay.
Six years ago, Yahoo! spent nearly $1 billion and turned over its operation in China to Alibaba in return for its share of Alibaba. There have been frequent reports of friction between the companies. It is well known Alibaba would like to buy its shares back from Yahoo!, but the American company is reluctant to sell what has become a very valuable asset.
Alibaba owns, among other companies, Taobao, China's most popular e-commerce retail website and a virtual clone of eBay, and Alipay, an online payment platform similar to PayPal. Taobao has grown since Yahoo!'s investment into one of the largest online retailers in the world with more than 800 million products listed and 370 million registered customers. Alipay has more than 550 million registered users and conducts nearly 8.5 million transactions daily.
Yahoo! stockholders learned May l0, in a Securities and Exchange Commission filing that all of Alipay stock was transferred toa new company owned by Ma. The CEO claimed the move was necessary to quickly comply with new Chinese government regulations. Ma said the restructuring was talked about in board meetings as early as July 2009. Yahoo!, though it has one of its co-founders on the Alibaba board of directors, still says it didn't know about the privatization of Alipay until March of this year.
Industry analysts estimate Yahoo!'s holdings in Alipay are worth about $1.7 billion dollars. Yahoo! stock prices have fallen nearly 12 percent since the announcement of the Alipay privatization. Since then Yahoo! has told stockholders it is negotiating with Alibaba to settle the loss of its investment in Alipay.
On May 13, Alibaba issued a clarification on the Alipay situation. It read, "Alibaba Group management has taken actions to comply with Chinese law governing payment companies in order to secure a license to continue operating Alipay. The Alibaba Group board discussed at numerous board meetings over the past three years the impending imposition of new regulatory requirements on the online payment industry, including ownership structures, as they were being developed in China, and was told in a July 2009 board meeting that majority shareholding in Alipay had been transferred into Chinese ownership. The actions taken by Alibaba Group management to comply with the licensing regulations and to ensure continuation of operations are in the best interest of the company and its shareholders. The continued operation of Alipay is essential to the preservation and enhancement of the value of Alibaba Group's businesses such as Taobao, as Alipay is the payments platform for e-commerce in these businesses."
On May 15, the companies issued a joint statement that read, "Alibaba Group, and its major stockholders … are engaged in and committed to productive negotiations to resolve the outstanding issues related to Alipay in a manner that serves the interests of all shareholders as soon as possible.
Later in May, Yahoo! co-founder and Alibaba board member Jerry Yang and Yahoo! Chief Financial officer Tim Morse held talks with Alibaba executives about how Yahoo! and other stockholders would be compensated for the loss of Alipay in the Alibaba Group. Yahoo!'s Bartz admitted to analysts the negotiations are complex, but Alibaba agrees that Alipay will continue to be the payment platform for Taobao, that Alipay will quickly receive an operating license from the Chinese government and that Alibaba investors will be adequately compensated for Alipay.
The license from the PBOC was among the first issued. The PBOC also issued licenses to two other Chinese payment companies – SmartPay and 99Bill. The licensing presumably fulfills part of the agreement Yahoo! is negotiating with Alibaba.
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