Yahoo to pay $1 billion for stake in China's Alibaba

Yahoo Inc. plans to take a significant stake in China's Corp. as part of a strategic partnership between the two companies, a company official said Thursday in Beijing.

As part of the deal, Yahoo will pay US$1 billion in cash for a 40 percent stake in its Chinese partner. In addition, Yahoo will transfer all of its Chinese businesses, which will continue to operate under the Yahoo brand, to Alibaba.

"This is Yahoo getting much bigger in China," said Daniel Rosensweig, the company's chief operating officer, speaking at a press conference in Beijing.

Based in Hangzhou, in eastern China, privately-owned Alibaba operates the ( online marketplace and the ( auction Web site, which competes with eBay Inc.'s China auction site.

The deal gives Yahoo a 40 percent stake in the Chinese Internet company and 35 percent of its voting shares.

The agreement makes Yahoo the largest outside investor in Alibaba, the companies said. Previously, the largest investor in Alibaba had been Japan's Softbank BB.

The partnership between Alibaba and Yahoo is unique among Internet companies, said Jack Ma, the chairman and chief executive officer of Alibaba, No other company has been able to successfully combine portal, e-commerce, search and communication offerings, he said.

Yahoo, in Sunnyvale, California, has struggled to establish a leading presence in China, where its best efforts have been unable to match the success of top Chinese portal operators such as Sina Corp. and Inc. At the same time, many of Yahoo biggest competitors from overseas, such as eBay and Google Inc., have stepped up their investments in China during recent years.

Nevertheless, Yahoo's decision to team up with Alibaba was not made because the company couldn't compete in China, Rosensweig said.

"We don't look at this as Yahoo not being able to succeed on its own in China," Rosensweig said. "We look at this as an opportunity to get much bigger much faster."

"It's very similar to the way Yahoo has been successful in Japan by finding a great local partner," he said, referring to Yahoo Japan, which was set up as part of a partnership with Softbank. Yahoo has done well in Japan, even forcing rival eBay to pull out of the market when it found itself unable to compete against Yahoo Japan's auction site.

Duncan Clark, managing director of consulting company BDA China Ltd., welcomed the Yahoo-Alibaba deal. "I salute the boldness of it," he said.

Teaming up with Alibaba gives Yahoo a "trusted lieutenant" in Ma, who is widely respected among his peers in China, Clark said. "He's someone with street cred," he said.

Despite the shared connection with Softbank, Alibaba and Yahoo executives credited the close personal relationship between Ma and Jerry Yang, a co-founder and chief yahoo at Yahoo, with helping to bring the two companies together.

To highlight the importance relationship, the press conference held in Beijing to announce the deal was conducted against a backdrop that included a large photograph of Ma and Yang sitting together on the Great Wall of China.

In the years since that photo was taken in the late 90s, Yang and Ma continued their friendship and the idea of a strategic partnership was first raised during a meeting between the two executives at Pebble Beach, California, said Porter Erisman, a spokesman for Alibaba.

"This kind of opportunity is very rare, If you don't grasp it you'll regret it. ...I've been waiting seven years for this opportunity," Ma said, referring to the visit he made with Yang to the Great Wall.

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