Alibaba still wants Yahoo to sell back stake

Clashes between the two companies have prompted Alibaba to push Yahoo to sell its share

Even though Yahoo CEO Carol Bartz made soothing comments about her company's relationship with Alibaba Group on Friday, the Chinese e-commerce giant doesn't feel the same way, according to a source with knowledge of Alibaba's thinking.

Instead, Alibaba wants to see an end to those ties, with Yahoo selling off its 39 per cent stake in the Chinese company, said the source.

"Alibaba Group management has come to believe it's in the best long-term interest of all Alibaba Group shareholders for Yahoo to make a partial or complete exit," the source added.

Last year, Yahoo made a deal with Microsoft to power its searches, which Alibaba.com CEO David Wei criticized this month during a meeting with reporters. Wei said Alibaba had acquired control of Yahoo China in 2005 in order to gain access to the search engine technology. But now that part of the deal has fallen through since Yahoo's search technology "no longer exists," he added.

Yahoo currently owns its share in Alibaba as part of a $1 billion deal made in 2005 that transferred all of Yahoo's Chinese properties to the e-commerce company. But the relationship has been rocky at times, stemming from disagreements that have caused clashes between the two companies.

For example, Alibaba criticized Yahoo for supporting Google this January when the search engine company came under cyberattacks from China and threatened to pull out of the country.

Earlier this month, those tensions escalated amid concerns that Yahoo's Hong Kong unit would compete with Alibaba for online advertisers on the mainland market.

Bartz, however, restated her support for holding a stake in Alibaba Group in a statement issued on Friday. "Our investment as a shareholder in Alibaba Group is strategic and a great one for our company and our shareholders," she said, adding that Yahoo is "very supportive" of Alibaba's operational direction.

Alibaba has tried to get Yahoo to sell off its stake in the company, and went as far to hold negotiations over the issue earlier this year. According to Alibaba, an initial proposal was given in February, leading to a formal offer by Alibaba in late May to buy back a partial stake. But Yahoo responded with a counteroffer in June, which Alibaba found to be "unjustifiable" and rejected.

Alibaba has since ended the discussions and is now moving on from the issue. Still, the company believes Yahoo should make an exit from Alibaba, said the source familiar with Alibaba's thinking. In addition to having nothing to offer from a "strategic technology perspective," Yahoo has "disrupted and undermined" Alibaba's efforts, the source added.

Since the 2005 agreement, Yahoo's position in the Chinese market has also changed. Yahoo is the seventh most popular Web portal in China, according to CR-Nielsen. But it now controls less than 1 per cent of the Chinese search market, down from the 21 per cent market share Yahoo commanded in early 2006, according to Analysys International.

Tags business issuesYahooMergers / acquisitionsalibabainvestments

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Michael Kan

IDG News Service

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