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Alibaba, Yahoo and Softbank Reach Deal over Alipay Spin-off

China’s largest E-commerce company Alibaba Group has settled its dispute with Yahoo and Softbank on the value of Alipay which was transferred by Jack Ma, CEO of Alibaba to an entity controlled by Mr. Ma.  The transfer was made for regulatory reasons, but without prior consultation of Yahoo and Softbank.

The agreement establishes the following:

  • The agreement preserves the existing relationship between Taobao and Alipay. Alipay will continue to provide payment processing services to Alibaba Group and its subsidiaries (including Taobao) on preferential terms.
  • Alibaba Group will license to Alipay certain intellectual property and technology and provide certain software technology services to Alipay and its subsidiaries. Alipay will pay to Alibaba Group, prior to a liquidity event, a royalty and software technology services fee, which consists of an expense reimbursement and a 49.9% share of the consolidated pre-tax income of Alipay and its subsidiaries.
  • Alibaba Group will receive no less than $2 billion and no more than $6 billion in proceeds from an IPO of Alipay or other liquidity event. The exact proceeds to Alibaba Group will be determined by multiplying the total equity value of Alipay by 37.5%, subject to the foregoing floor and ceiling amounts.

Alipay provides payment processing services to Alibaba Group and some affiliates, including Taobao, and to third parties.  Taobao is China’s largest online retail website. Alibaba Group’s principal shareholders include Yahoo!, SoftBank, and Jack Ma and Joseph Tsai.  In May 2011 Alipay obtained a license from the People’s Bank of China ro operate a payment system in China following the restructuring of Alipay.  The license will enable Alipay to continue serving Taobao and its other customers in China.

Source:  Yahoo Press Release

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