Monday, May 16, 2011

Time for Yahoo! and Alibaba to Reboot Their Relationship

By Eric Jackson
RealMoney Contributor

5/16/2011 12:15 PM EDT
Click here for more stories by Eric Jackson

Last week's press-release war between Yahoo! (YHOO - commentary - Trade Now) and Alibaba Groupwas a car crash you couldn't look away from.

Now it seems as if some adults -- I mean Yahoo! shareholders -- intervened on behalf of their petulant children over the weekend.

After seeing the stock drop 10% at the end of last week, and hearing from the Yahoo! public relations team that the company had been informed on March 31 in a letter to its accounting department that it no longer owned Alipay, Yahoo!'s shareholders virtually stormed the boardroom in Sunnyvale, Calif.

Late Friday, a Chinese website reported that Alibaba Group still owned Alipay. The entity had simply been transferred to a variable interest entity (VIE) for the purposes of obtaining the necessary new online payment license from the Chinese government. But that version of events got no play in the U.S. media. It was simply assumed that Jack Ma -- Alibaba Group's CEO and founder -- had deceived the Americans and Japanese.

Based on a joint statement from Yahoo! and Alibaba Group over the weekend, it's clear that Yahoo! shareholders have read the riot act to the board. They've basically said, "Stop these inane press releases, get your act together and get your facts straight!"

Any talk of suing Alibaba Group by anyone connected to Yahoo! is going to be quickly snuffed out.

It's time to reboot this relationship.

Both sides (and, of course, Japan's Softbank Corp. with its 30% ownership stake) have a lot to gain or lose from how communications are handled going forward.

If you think that Jack Ma can simply take Alipay and Taobao away from Yahoo! and Softbank with no implication to his long-term reputation and to Sino-American business relations, think again. Ma knows this. Just because he doesn't like the 2005 deal he struck, accepting Yahoo!'s $1 billion in exchange for a 43% stake, he can't turn his back on it.


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