Alibaba put Yahoo's position in China in jeopardy as it spun off its online payment service Alipay.
Bloomberg reported that Yahoo Inc. and Alibaba Group have released a joint statement that they are in negotiations over Alipay.
Yahoo revealed on Wednesday that Alipay was sold to a group whose majority is owned by Alibaba founder and CEO Jack Ma.
Yahoo holds 43 percent stake in Alibaba Group while Softbank owns the remaining 30 percent. Alibaba Group sold its 40 percent stake to Yahoo for $1 billion in 2005.
Alibaba is a B2B e-commerce site which brings together Chinese manufacturers with suppliers from across the world. The site runs two wings; one caters to the international suppliers and buyers while the other caters to the domestic Chinese market.
According to TechCrunch Alibaba has two key assets under its purview: Taobao, an eBay like platform with 170 million users, controls 80 percent of Chinese e-commerce market while AliPay is a PayPal equivalent with over 300 million users. Stifel, Nicolaus & Co. estimate that Taobao could be worth another $10 billion and Alipay could be worth nearly $5 billion.
The current spin of Alipay has raised concerns that Alibaba could change its relationship with Taobao.
The changing relationship between Yahoo and Alibaba was captured by Bloomberg when in Sept. 2010 it quoted Alibaba.com Ltd. Chief Executive Officer David Wei as saying: Why do we need a financial investor with no business synergy or technology? The biggest thing that has changed is Yahoo lost its own search-engine technology. The biggest reason for such a partnership doesn't exist.
Also, Alibaba had called Yahoo's decision to support Google in its dispute with Chinese government as reckless.
Bloomberg reported that Yahoo China currently accounts for 1 percent of the China's online search market, down 15 percent from 2005, when it sold its Chinese operations to Alibaba.
However, TechCrunch in an article reports that Alibaba founder Jack Ma wants to chuck Yahoo from his company, while Yahoo would be at a loss if it sells its stake before the most profitable units Taobao and Alipay go public.
Alipay is the backbone for online payment for Taobao. Thus, with Alibaba having spun off Alipay, Yahoo's stake in Alibaba would become less valuable.
While the spin-off of Alipay has strategic implications for Yahoo, ABC News reported Analyst Gene Munster at Piper Jaffray as stating that the move was prompted by regulatory concerns about foreign ownership of a Chinese payments processor.
The market however reacted to the news sending Yahoo stocks down by 8.4 percent on Wednesday.