Alibaba reaches out to Yahoo boss

PUBLISHED : Thursday, 16 February, 2012, 12:00am
UPDATED : Thursday, 16 February, 2012, 12:00am

Alibaba Group plans to talk directly to Yahoo chief executive Scott Thompson, side-stepping dealmakers from his company, after the failure of talks on a buy-back of shares in the Chinese firm held by the US internet pioneer.

The Hangzhou-based e-commerce giant and Japan's Softbank will reach out directly to Thompson 'to get more clarity about Yahoo's intentions for its Asian shareholdings' before negotiations are revived, a person close to the matter said yesterday.

Their action was prompted by the collapse of talks to finalise a reported tax-free transaction, called a cash-rich split-off, that has been in the works since October last year.

Alibaba Group, whose flagship company is Hong Kong-listed, planned to create or use an existing subsidiary with sufficient cash and assets as payment to buy back about a quarter of Yahoo's 40 per cent stake in the mainland firm. Yahoo was also in talks to sell its 35 per cent interest in Yahoo Japan back to controlling shareholder Softbank.

Those arrangements with privately held Alibaba Group and SoftBank were designed to save Yahoo more than US$4 billion in US taxes, according to the Dow Jones-owned All Things Digital online publication.

Reports in December said the combined share repurchases by Alibaba Group and Softbank would be worth more than US$17 billion.

'The bottom line is that the reported deal with the tax advantage is dead,' the person close to the matter said. 'Yahoo seems to be scrambling to try and salvage something, but it's unclear what that is.'

Alibaba Group's spokesman in Hong Kong declined to comment.

The All Things Digital report yesterday said negotiators from Yahoo, Alibaba Group and Softbank were in Hong Kong this week for the latest round of discussions, which apparently raised new objections against the proposed deal.

Another person briefed on the matter said Yahoo's representatives initially gave the impression that they wanted to do the deal so the company could unlock value for shareholders and raise cash to sharpen its focus on rebuilding the US internet company's core business.

'There was a disconnect between what the Yahoo chairman said in his letter last week and how the negotiations proceeded,' the person said. He added that the collapse of talks was 'not a negotiating ploy' and that pursuing another deal may not yield the attractive tax advantages offered by the recent proposal.

Yahoo's outgoing chairman, Roy Bostock, wrote to shareholders on February 7 that the company was 'in active discussions with our partners in Asia regarding the possibility of restructuring our holdings in Alibaba Group and Yahoo Japan'.

The failed talks, however, echoed what Alibaba Group chairman Jack Ma Yun had said in October: 'The problem is what Yahoo wants to do.'

In May 2010, Alibaba Group submitted to Yahoo a straight cash transaction to buy back part of its shares in the mainland company. Yahoo's counter proposal was unacceptable.

According to a Forbes report, Yahoo had also rejected a US$3.5 billion offer made early last year by an investment group led by Ma to acquire a 15 per cent stake in the company.

A JP Morgan Securities report said Alibaba Group could have likely offered Yahoo its 75 per cent stake in subsidiary - worth an estimated US$4.4 billion - under the recently scuttled buyback deal.