In what would be a dramatic turnaround of events, Jack Ma, founder and chief executive of Chinese e-commerce giant Alibaba Group, made a provocative declaration last week that he was “very, very interested” in buying Yahoo.
How times have changed – the apprentice is now ready to take down the master.
After all, just six years ago Yahoo invested $1 billion for a 40% stake in Alibaba, at the time when the Chinese upstart was in need of funding and technology know-how.
Alibaba’s recent round of financing valued the company at $32 billion, meaning Yahoo’s stake is worth more than $13 billion.
Ma, who made the remarks during a conference at the Stanford Graduate School of Business, said he is already in discussions with other potential buyers about options. Private equity firm Silver Lake and Russia’s Digital Sky Technologies – both participants in the latest Alibaba $800 million financing round – are said to be some of the investors Ma has been talking to.
Analysts say the deal makes sense for Alibaba, in providing a potential vehicle through which Alibaba could expand into the North American market, despite Yahoo’s declining market share. Probably of more interest from Ma’s perspective is Yahoo’s 35% stake in its Yahoo Japan affiliate. But most of all he has made it clear that he wants to buy back Yahoo’s stake in Alibaba. Thus far he has always been rebuffed, so he would be foolish to walk away from the opportunity, says TechCrunch, a Silicon Valley blog. That might mean having to pay for Yahoo’s other assets too, but at least it would mean regaining the 40% stake in Alibaba.
Under the terms of a 2005 agreement, Alibaba and Yahoo Japan’s majority shareholder Softbank have a 15-day exclusivity period should Yahoo be put up for sale. After that, Yahoo can sell to any buyer of its choosing.
This all leads to a range of potential scenarios in which Yahoo is sold either in its entirety or is broken up and auctioned off in parts. The company is currently undergoing a strategic review but its weakening revenue base could mean that current shareholders won’t want to delay too long on a deal.
The wider issue of Yahoo coming under Chinese control is also causing consternation for privacy activists in the US, who say that data from Yahoo’s popular email and instant messaging system might find its way to China if the company were to be purchased by Alibaba.
Rebecca MacKinnon, a senior fellow at the New American Foundation and an expert on internet issues in China, was quoted as saying: “Will people who use Yahoo email feel comfortable using a service owned by a Chinese company, knowing that in China all internet companies are expected to share information about user identities and activities on request?”
Others say this is an overreaction. “These days the US desperately needs direct investment from China that goes somewhere else other than into Treasury debt,” says a Fortune editorial. “But if we keep someone like Jack Ma – a brash, engaging, smart entrepreneur who loves the Silicon Valley business ethos – from pursuing a deal because of specious ‘privacy’ or national security issues, then we are well and truly clueless – dumber even than the Chinese leadership these days thinks we are.”
Given Ma’s frosty relationship with ousted Yahoo boss Carol Bartz (see WiC118), he will definitely feel vindicated if he pulls this deal off.
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.