The battle over what to do with Alipay among the three interests involved — Chinese e-commerce giant Alibaba Group, Yahoo (NSDQ: YHOO) and Softbank — has finally been resolved, the trio announced this morning. Among the terms of the deal, Alibaba will receive at least $2 billion — but no higher than $6 billion — in proceeds from an IPO of Alipay or “other liquidity event.” Release
The problems started when Alibaba spun out the online payments system Alipay without prior approvals from its top shareholders, Yahoo and Softbank.
There is no immediate financial impact on Alibaba shareholders Yahoo and Softbank, said Joe Tsai, Alibaba’s CFO, during a conference call discussing the deal.
Alibaba and Alipay have also agreed not to compete against each other. Other highlights of the deal include:
– 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.
In a statement, Yahoo CEO Carol Bartz — who, along with Alibaba head Jack Ma, did not participate in the call — hailed the agreement. “As a result of this constructive process, we have an agreement that preserves the value of Taobao, provides for profit sharing at Alipay, and creates a structure to allow Alibaba Group to participate if Alipay’s value is realized in an IPO or other liquidity event. Alibaba Group and its management team have an impressive track record of value creation and we look forward to participating in Alibaba Group’s-and Alipay’s-continued success.”
As explained during the call, the complex structure of the deal was a necessity related to getting proper licensing and regulatory approvals from the Chinese People’s Bank.
In the meantime, Tsai told analysts and investors that an IPO of Alipay was not imminent and that’s it’s a little too soon to think about it. It’s also too early to speculate how profitable Alipay could become.
For more details about the deal, Yahoo has released an 8-K here.