Yahoo shares plummet on Alibaba restructuring

Chinese Internet group 40% owned by Yahoo transferring online payments unit

Shares of Yahoo (NASDAQ: YHOO) fell nearly 10 percent Wednesday before finishing trading at 17.20, down 7.3 percent, after the company revealed that the Chinese Internet conglomerate in which it owns a 40 percent stake might lose its online payment unit.

In a 10Q filing with the Securities and Exchange Commission, Yahoo explained:

To expedite obtaining an essential regulatory license, the ownership of Alibaba Group’s online payment business, Alipay, was restructured so that 100 percent of its outstanding shares are held by a Chinese domestic company which is majority owned by Alibaba Group’s chief executive officer (Jack Ma). Alibaba Group’s management and its principal shareholders, Yahoo! and Softbank Corporation, are engaged in ongoing discussions regarding the terms of the restructuring and the appropriate commercial arrangements related to the online payment business.

Bottom line: It remains to be determined how much value Alibaba Group (and by extension, Yahoo) loses if Alipay is given away, and what it gets in return.

On Wednesday, though, investors ballparked Yahoo's loss in value to be in the 7 percent to 10 percent range, and they did so with great fervor. It was the highest-volume day for Yahoo shares since last Oct. 14 -- nearly seven months ago -- when 122.4 million shares changed hands amid rumors that AOL was considering buying Yahoo.

(Also see: Bing shows best monthly gain yet in search market share)

This Bloomberg article cites a research note to clients from Jordan Rohan, an analyst at Stifel Nicolaus & Co., in which Rohan argues that the Alipay transfer may decrease Alibaba's value:

In a worst-case scenario, profit from the payment business could be diverted to the new entity, away from Alibaba Group and Yahoo, [Rohan] wrote.

"Worst-case scenario"? How about "most-likely scenario."

Just last week Yahoo shares jumped to a 52-week high of $18.35 after hedge fund Greenlight Capital announced it was taking a position in Yahoo's stock, in large part because of the potential value of Alibaba.

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