Yahoo to Pay $1 Billion for Stake in China's Alibaba
Yahoo! Inc. agreed to pay $1 billion in cash for a 40 percent stake in Alibaba.com, China's biggest online retailer, to catch up with EBay Inc. in the world's second-largest Internet market.
Yahoo, owner of the world's most visited Web site, will become Alibaba's biggest investor, the companies said in a joint statement today. Alibaba will take over Sunnyvale, California-based Yahoo's China operations, with Jack Ma, chief executive of the Chinese company, leading the new venture.
The biggest investment by an overseas company in China's Internet industry will give Yahoo 43 percent of an online auction market forecast by Beijing-based iResearch Inc. to expand sixfold to $2.6 billion by 2007, closing in on EBay's 50 percent share. The alliance will also help to sell Yahoo's search-engine services in a market with 100 million users, half the number of the U.S.
``When you consider Yahoo is getting into such a large market, spending $1 billion to jumpstart one's presence there is not such an unreasonable move,'' said Dick Wei, an analyst at JPMorgan Securities Inc. in Hong Kong. ``Internet companies like Yahoo are paying big sums of money for Chinese online companies to gain momentum in a growing market.''
Yahoo bought new shares from Alibaba and existing shares from investors. The statement didn't give a breakdown. Ma didn't comment on his shareholding.
Tokyo-based Softbank Corp., a founding shareholder of Yahoo and currently the largest shareholder of Alibaba, today said it sold a stake in Alibaba's Taobao.com online trading site for $360 million. The Japanese company said it will own a 27.4 percent stake in the new company.
Yahoo shares rose 75 cents, or 2.2 percent, to $34.94 at 4 p.m. New York time in Nasdaq Stock Market composite trading. They've fallen 7.3 percent this year.
``This is a time when the start-up companies from a few years ago are all maturing'' in China, said Jerry Yang, the co-founder of Yahoo. ``Commerce is an area where the government has been very receptive to investment.''
Yahoo's investment comes a week after Cnooc Ltd., a subsidiary of state-controlled China National Offshore Oil Co., abandoned its $18.5 billion bid for Unocal Corp. because of opposition from U.S. lawmakers.
Yang will be a director of the company with Softbank's founder Masayoshi Son, who was one of the original investors in Yahoo. The new company is valued at $4 billion, according to today's statement.
The transaction is the largest foreign investment made in China's Internet market, said Edward Yu, chief executive of Beijing-based Analysys International, a technology market research company. EBay completed its $150 million acquisition of EBay's EachNet.com auction site in 2003, while Yahoo bought Chinese keyword search engine 3721 Network Software Co. for about $123 million.
``Companies feel that China's consumer market is growing so fast that they must be there,'' said Laura Martin, an analyst with Soleil Securities Corp. in Pasadena, California, who rates Yahoo shares ``hold'' and said she doesn't own them. She made the comments before Yahoo's announcement.
Take Baidu.com Inc., a Chinese Internet search engine that's 2.6 percent owned by Google Inc. The stock has more than tripled to $97.90 since it was first sold to the public for $27 on Aug. 5.
Yahoo, Google and EBay are expanding overseas to tap markets that are growing more rapidly than in the U.S. International sales of Yahoo rose 84 percent to $383 million in the second quarter, from a 39 percent gain in U.S. sales to $870 million.
Alibaba, founded in 1999 and based in Hangzhou, 120 miles south of Shanghai, runs three online trading Web sites that have more than 14 million users. The sites help small- and medium-sized businesses in China exchange goods and export products to international markets.
The company, which has 2,300 employees, reported sales of $46 million last year, according to U.S. accounting standards. Alibaba also owns AliPay, a service similar to EBay's PayPal that allows individuals and businesses to send and receive payments online.
Yahoo's 40 percent stake in Alibaba will give it 35 percent of the voting rights, according to today's statement. The transaction is expected to be completed in the fourth quarter of this year, it said.
The transaction comes as tie-ups between Chinese and overseas technology companies increase. Lenovo Holdings Ltd., China's biggest personal-computer maker, yesterday reported an unexpected gain in first-quarter profit after buying International Business Machines Corp.'s PC unit in May. TCL Corp. last year bought a majority stake in a Thomson SA venture to become the world's biggest maker of TV sets.
``This deal would make Yahoo a strong, possibly dominant player, in China's Internet market,'' said Analysys' Yu. ``It also would give Alibaba much needed cash to prepare for a public listing down the road.''
EBay's Eachnet site has about 50 percent of China's online trading market, while Alibaba's Taobao.com controls more than 40 percent as of June, according to Analysys. Yahoo's 1pai.com.cn now has about 3 percent share, it said.
About 35 million Chinese users are expected to buy and sell goods using online auctions by 2007, from 12 million in 2004, according to iResearch. Transactions are expected to rise to 21 billion yuan ($2.6 billion) in two years from 3.4 billion yuan now, it said. The country has about 100 million Internet users.
China had about 103 million Web users, while the U.S. had 203 million, according to the latest figures in June from InternetWorldStats.com, a site operated by Miniwatts International Ltd.