INTERNET: Alibaba Sticks with Yahoo, Didi Kuaidi

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Bottom line: Yahoo’s reversal of its earlier decision to spin off its 15 percent of Alibaba into a separate company will have no impact on Alibaba, which is indicating separately that it will hold onto its own big stake in Uber China rival Didi Kuaidi.

Yahoo reverses course on Alibaba stake spin-off

A couple of news items are showing that the long and complex relationship between Internet search pioneer Yahoo (Nasdaq: YHOO) and Chinese e-commerce juggernaut Alibaba (NYSE: BABA) is far from over, and how the companies may remain hopelessly entangled for a while to come. The first item made global headlines, and has Yahoo reversing its earlier decision to spin off its 15 percent of Alibaba into a separate company. The second item has Yahoo founder Jerry Yang getting named as a top adviser to Didi Kuaidi, China’s main rival to US private car services giant Uber, which counts Alibaba as one of its major stakeholders.

At the heart of this complex dance is a personal relationship between Alibaba founder Jack Ma and Yahoo’s Yang. The pair struck up a friendship more than a decade ago, and ultimately formed a major alliance that saw Yahoo purchase 40 percent of Alibaba for about $1 billion. Yahoo later sold down that stake, netting billions of dollars in profits. But it still holds 15 percent of Alibaba, which is currently worth about $30 billion.

Yahoo had previously said it would spin off the Alibaba stake into a separate company, in a bid to separate that asset from its core Internet operations. But the plan ran into trouble earlier this year when Washington tax officials said they couldn’t guarantee the spin-off would be tax free, which is how Yahoo originally envisioned the move.

The tax ruling appears to be the major factor behind Yahoo’s new change of heart, and now the company has decided to retain the Alibaba stake and instead spin off the rests of its core Internet business into a separate company. (English article; Chinese article) While the dollar amounts involved in this decision are quite large, the decision itself looks rather inconsequential for Alibaba the company.

At the end of the day Yahoo will still divide into 2 companies, one with the Alibaba stake and the other with its core Internet operations. Accordingly, this particular move shouldn’t affect Alibaba at all unless it decides to make a bid for Yahoo after the spin off. But that seems unlikely since the post spin-off Yahoo would be quite expensive, and there’s really no reason Alibaba would want to reclaim the 15 percent of its shares that would be the core asset of the new Yahoo.

Holding on to Didi Kuaidi

By comparison, the executive move involving Jerry Yang doesn’t directly involve any money but is much more interesting from a strategic perspective. That story has Didi Kuaidi naming Yang as a senior adviser, adding to his list of titles that also includes independent director of Alibaba itself. (English article)

There’s nothing else of interest in the news reports on the move, but it’s probably quite safe to say that Didi Kuaidi made the appointment at the strong urging of Jack Ma. That’s quite significant because it indicates that Ma and Alibaba intend to retain their current large stake in Didi Kuaidi, which was formed early this year through a mega-merger of sector leaders Didi and Kuaidi.

That merger and another similar one in October between China’s top group buying sites put Alibaba and archrival Tencent (HKEx: 700) in the awkward position of becoming partners, since each held a big stake in one of the companies being combined. Alibaba appears to be capitulating to Tencent in the group buying case by indicating it wants to sell its relevant share (previous post). But this latest appointment involving Yang appears to show it has no intention of abandoning its investment in Didi Kuaidi anytime soon.

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