May 16, 2011 / 9:10 AM / 6 years ago

Yahoo faces tough ride to iron out differences with Alibaba

<p>The Yahoo! offices are pictured in Santa Monica, California April 18, 2011. Yahoo! will report its quarterly results on Tuesday.Mario Anzuoni</p>

SHANGHAI (Reuters) - Yahoo Inc and Alibaba Group will find it difficult to resolve their feud over the Chinese company's transfer of a major Internet asset, raising questions over how long its troubled marriage would last.

Yahoo shares have fallen 11 percent since Tuesday when the U.S. Internet company said Alibaba had restructured Alipay, an online e-commerce payment system similar to eBay Inc's PayPal, to Alibaba Chief Executive Officer Jack Ma.

Analysts said this reduced the value of Yahoo's 43 percent stake in Alibaba - considered one of its most valuable assets.

After initially issuing contradictory statements, both companies said in a joint statement that they were in negotiations and were committed to resolving the dispute.

However, analysts said the soured relationship between Alibaba and its major shareholder is a deep-rooted one and any attempts to improve ties will not be easy.

"You will see more difficulties in communication and potential disagreements probably until the day Yahoo decides to sell back its stake in the company," said Mark Natkin, managing director of Marbridge Consulting.

Yahoo said it was blindsided by the Alipay deal, while Alibaba countered that Yahoo was aware of the transaction by virtue of having a board seat, now held by former Yahoo Chief Executive Jerry Yang, who is also a Yahoo director.

Yahoo and Alibaba have endured long simmering tensions since the departure of Yang from Yahoo. Alibaba has repeatedly said it wants to buyback Yahoo's stake in it, while Yahoo has said it is not keen on selling.

Natkin said the dispute was unlikely to escalate further. "Yahoo has been in the China market long enough to know that it must be pragmatic in working together with the government and working long the government timeline," he said.

"I feel a lawsuit won't be productive and won't put them in a favorable position with the government."

On Saturday, Ma told a shareholders' meeting in Hong Kong that the move to spin-off Alipay was lawful and transparent, Bloomberg News reported.

Alibaba Group owns Alibaba.com and China's largest e-commerce website with a consumer focus Taobao.

The feud underscores the tense relationship between Ma and Carol Bartz, Yahoo's chief executive since January 2009.

"For Carol (Bartz) the majority of the worth of Yahoo's shares come from Alibaba and yet she doesn't listen to Alibaba. So that's some of her fault as well, that she doesn't know what is happening in China," said Dick Wei, a Hong Kong-based analyst with JPMorgan.

Alibaba said the board was informed in July 2009 that majority shareholding in Alipay had been transferred into Chinese ownership.

The company said its move to restructure Alipay came as China was about to impose new regulations on online payment providers. China's central bank strengthened regulations last year governing third-party online payment systems requiring them to apply for a license.

Japan's Softbank Corp also owns a stake in Alibaba. Four directors make up Alibaba's board, including Yang and Softbank founder Masayoshi Son.

Editing by Kazunori Takada and Anshuman Daga

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