Microsoft-Yahoo war may spur Alibaba buyback

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Shanghai, April 7: : stake from Yahoo.

Possible candidates include Chinese pension funds, or even one of the country's state-backed telecoms companies looking to move into Internet services, said Claus Mortensen, analyst at IDC's Asia/Pacific Emerging Technologies Research.

Alibaba's other major shareholder, Japan's Softbank, which holds a 33 percent stake, is unlikely to buy Yahoo's stake as it is heavily in debt after buying Vodafone's Japan unit two years ago.

"There's no way we could raise funds in this environment. We bought Vodafone (Japan) just in the nick of time. We were lucky," said a Softbank contact, who declined to be identified because he was not authorised to speak on the matter.

STAYING INDEPENDENT

Beijing is often wary of what it sees as attempts by foreigners to control prominent Chinese companies.

Alibaba dominates China's business-to-business sector with a 70 percent share of a market that is expected to grow to 2,130 billion yuan ($303.6 billion) in 2009 from 1,250 billion yuan in 2007, according to the Internet Society of China.

Alibaba is expected to maintain its dominant position in the short term, said Ovum analyst Charice Wang, but over the longer term local rivals offering niche services may eat into that lead.

Beijing was stung by its exposure to a foreign firm shortly after a 2005 deal in which Yahoo merged its Chinese operations into Alibaba in exchange for the stake in Alibaba.

Along with Yahoo's operations, Alibaba also gained a role in an international human rights controversy when press freedom watchdogs and U.S. lawmakers attacked Yahoo for turning over a Chinese reporter's emails to the government, which later imprisoned him.

If the Microsoft-Yahoo deal goes through and Yahoo retains its stake, the Chinese authorities are likely to set conditions for the stake's transfer, such as limiting the number of foreigners on Alibaba's board.

RIGHT OF FIRST OFFER

Even if Alibaba manages to shore up finances to buy back its stake from Yahoo, there is a small chance its interpretation of the 'right of first offer' might be challenged by a combined Microsoft-Yahoo entity. Both U.S. companies have declined to comment on Alibaba's interpretation of the right.

But one lawyer said Alibaba's right of first offer -- which applies to both a direct and indirect transfer of Yahoo's stake -- may not apply in case of a change of ownership of Yahoo.