Fallout of Microsoft-Yahoo war: a possible Alibaba buyback
07 Apr 2008
Mumbai: Concerned about its place in a taken-over Yahoo!, in which Microsoft would be at the helm, Chinese Internet firm Alibaba is reportedly set to bail out, and has decided to expedite plans to buy back the near-40 per cent stake that the American Internet company owns in it. (See: China's Alibaba peeks at its future through Microsoft's Yahoo fog: WSJ)
Reports indicate Alibaba's keenness to control its future, stating that the company wants to fund a buyback of all or part of the stake that Yahoo owns. Funding, according to some analyst, could come in the form of foreign and local Chinese investors, which could include state-backed firms that wish to explore the Internet sector. Alibaba's plans for its immediate future could see it exercising its 'right of first offer' on the stake with Yahoo!, in case Yahoo! Finally buckles to Microsoft's pressure.
Alibaba is a dominant player on China's business-to-business (B2B) map, boasting a sizeable 70 per cent market share. The 'right of first offer' basically ensures that Yahoo! cannot transfer its stake in Alibaba without first offering it to other shareholders.
If Alibaba does complete the buy back to retain its independence, it could be passing up on potential business opportunities with Microsoft, such as in the fields of advertising and / or online trading. Microsoft too, would lose an opportunity to grab a fair chunk of the East, and one of the most populous regions of the world, which could be its biggest market in terms of number of individuals. But the bigger impact could be seen on the valuation of the potential Yahoo! - Microsoft deal, as Yahoo!'s claims of being undervalued stem from the fact that its Asian operations form a decent chunk of value. With that missing, it'll be time to re-calculate the numbers.
