A few months ago, Jack Ma was perhaps China’s most respected business leader, having established two online giants, Alibaba and Taobao. He did so while maintaining a clean image that ranked him a notch above many China entrepreneurs. And his English language skills, and his willingness to be interviewed by foreign media, made Ma a hit internationally too.
But the mantle began to slip earlier this year when it emerged that Ma had spun off Alipay, an online payment service from the Alibaba Group to another company under his control.
This was achieved much to the chagrin of major shareholders Yahoo and Softbank, which own 43% and 30% of Alibaba Group respectively. Ma was also drawn into a highly public argument about the move with influential local commentators (for a fuller explanation of the situation, see WiC112).
Ma will now be hoping a line has been drawn under the affair, following an agreement that defines Alibaba’s new relationship with Alipay. Alipay will continue to supply both Alibaba and Taobao with payment processing services and the company will hand over 49% of its pretax income to its former owners. And if Alipay goes public, Alibaba will receive a one-off cash payment of between $2 billion and $6 billion. For these figures to be realised, Alipay would need to be worth between $5.3 billion and $16 billion at the time of IPO.
Carol Bartz, Yahoo’s chief executive, claimed to be satisfied with the deal, describing it as “a good outcome for Yahoo and our shareholders, as well as all the parties to this agreement.”
But analysts on Wall Street saw a more mixed picture. Although it’s a positive for Alibaba’s shareholders that the company’s relationship with Alipay is now better defined, the upper limit on the IPO payout is seen by some as a negative. And no-one expects a listing to be imminent: “This agreement provides no liquidity for Yahoo anytime soon. Any Alipay liquidity event is far in the future as the business is relatively immature,” Frederick Moran of the Benchmark Company told Barron’s.
Nor is it clear that Ma himself is happy with the outcome. The main reason given for transferring Alipay’s ownership in the first place was to comply with new regulations governing foreign ownership of third-party payment services. But Southern Weekly also maintains that Ma is unhappy with his major shareholders. This is something that we have written about before (WiC 79) following a 2005 deal in which Yahoo gave Alibaba its Chinese assets along with $1 billion in return for its current stake at group level. But Alibaba executives seem disappointed by Yahoo’s role in the business. Last year, former CEO David Wei told Bloomberg that any idea that Yahoo was contributing much was “laughable”.
Despite the disquiet, it looks as though Yahoo and Ma will remain bedfellows for the foreseeable future. Further, the new agreement means that they have a shared interest in Alipay’s future success.
Established in 2004, Alipay started to turn a profit in 2009. Taobao, Alibaba’s e-commerce site (see WiC94), accounts for more than 50% of its transactions, although Alipay is looking to diversify away from this dependence by offering payment solutions to other companies.
But to do that, customers for Alipay’s services will need to feel confident that the company can be relied upon. In the past, Jack Ma’s presence at the helm has been a reassuring factor. Following the recent spat with his key shareholders, some of that image may have been tarnished. He will be hoping for a quieter period ahead, in which he can buff up and repolish the Ma brand.
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