Alibaba Group stands to get up to $6 billion in a spin-off of its Alipay e-payment division under a long-awaited deal the Chinese company struck with partners Softbank Corp and Yahoo Inc.
Shares of Yahoo, which owns 43 percent of Alibaba, initially jumped on the deal. But they reversed course and were down 2.5 percent at $13.16 by late morning, as investors grew concerned about the company's ability to control, and wring benefit from, its prized Asian assets.
The pact, announced in a joint statement on Friday, brings some relief to Yahoo investors but does not resolve the issue of how Yahoo can capitalize on its Asian assets, considered on Wall Street the most valuable slice of the struggling U.S. Web company.
"This deal just repairs a problem but the value transfer that occurred gave Yahoo the short end of the stick," said BGC Financial analyst Colin Gillis.
"The key thing here is that they got the deal done," Gillis said. "But it doesn't fix the issue of how Yahoo can take this paper holding in Alibaba Group and turn it into cash on its balance sheet."
The agreement between the three parties capped months of intense negotiations sparked by a highly public spat over the transfer of Alipay to a company wholly owned by Alibaba founder Jack Ma -- a move Yahoo claimed it was unaware of.
It also put an additional strain on an already troubled relationship between the Chinese Internet company and Yahoo after CEO Carol Bartz was brought in to try to rekindle growth at the once-dominant U.S. Internet player.
Alibaba said it struck an agreement with Japan's Softbank and Yahoo that promises Alibaba could get up to $6 billion and no less than $2 billion in proceeds from an initial public offering of Alipay or other "liquidity event."
Alipay will keep providing payment processing to Alibaba's e-commerce platform, Taobao, on "preferential terms." Much of Alipay's value lies in the payment systems it provides to Taobao, which is Alibaba's most strategic asset. Alipay will also pay a royalty and a software technology services fee to Alibaba, prior to a liquidity event, according to the statement.
JP Morgan? said the agreement over Alipay was "better than nothing, but not that great." Ultimately, Alibaba, which used to own all of Alipay, has effectively seen its stake reduced, which hurts Yahoo, the investment bank said in a note.
In May, Yahoo claimed it had been blindsided by Alibaba's restructuring of Alipay, an online e-commerce payment similar to eBay Inc's PayPal. As part of the restructuring, Alibaba's CEO, Ma, took full control of the company, which edged Yahoo out of the equation and sent its shares down nearly 10 percent on the news.
Alibaba countered that Yahoo was aware of the transaction by virtue of having a board seat now held by former Yahoo chief executive and director Jerry Yang.
After the public spat, the hedge fund Greenlight Capital, which is run by investor David Einhorn, dumped its sizable position in Yahoo.
Yahoo's stake in Alibaba and its 35 percent ownership in Yahoo Japan are considered the U.S. Internet company's most valuable assets. Softbank holds a major stake in Alibaba and also 42 percent of Yahoo Japan.
Shares of Alibaba.com, the listed unit of Alibaba, dipped 0.1 percent in Hong Kong. Stock in SoftBank, another major shareholder of Alibaba's, fell 3.5 percent on the Tokyo Stock Exchange.