Alibaba, Yahoo, and Softbank said today they have settled a financial squabble over Alipay, a payment system in China.
The companies have dueled over disclosure and legality of Alibaba's move to spin off Alipay and today's agreement puts the issue to rest. Alibaba transferred Alipay outside of the company so it could get a non-bank payment company license. Chinese regulators didn't want China's largest online payment system owned by outside shareholders.
In May, the flap between Yahoo and Alibaba boiled over. Yahoo wasn't notified about the Alipay move until March 31. Questions were quickly raised about how Yahoo--Alibaba's largest shareholder--could be kept in the dark about the move.
Now that entire hubbub is history. Alipay and Taobao now have an intercompany relationship. Alipay will provide payment processing for Alibaba and Taobao. Alibaba will license Alipay intellectual property and technology services.
Yahoo and Softbank will remain Alibaba shareholders, but the Alipay settlement is designed so the three companies participate in future gains. Among the financial details:
Alipay will pay Alibaba a royalty and software technology services fee of expense reimbursement and 49.9 percent share of pre-tax income.
Alibaba will get no less than $2 billion and no more than $6 billion in proceeds from any Alipay initial public offering or liquidity event.
All sides maintained that the deal was good for their shareholders.
Analysts were mixed on the deal. Wells Fargo analyst Jason Maynard said:
Yahoo announced that it has reached an agreement with the Alibaba Group and Softbank to preserve the relationship between Taobao and Alipay. While the headline of an agreement sounds positive, we aren't sure this puts Yahoo! any closer to realizing material value from its holding. We still think there is too much uncertainty about the realizable value of the Asian assets to confidently assume this will yield a multibillion windfall asset gain.
Stifel Nicolaus analyst Jordan Rohan said:
The valuation implied for Alibaba and Alipay seems reasonable, but the mechanism for Yahoo to extract value from those assets is as murky as it has ever been. If one assumes the value of the Alibaba shares posted as collateral for the promissory note are equal to the $500 million value, then the implied valuation for Alibaba Group is $25 billion. Similarly, if we gross up the $2 billion-$6billion collar for Alipay proceeds to be paid to Alibaba Group after a liquidity event, we could arrive at a total value for Alipay of $5-$15 billion. That said, with Jack Ma and his team in charge, it is unclear how Yahoo would access those funds.