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Update: Chinese Regulators Concerned About MSFT-YHOO’s Effect On Alibaba

That a Microsoft-Yahoo tie up would draw some serious scrutiny from the EU almost goes without saying. But because of Yahoo’s significant holdings in the Alibaba Group, the deal may raise flags in China as well. WSJ reports that the internet conglomerate has been contacted by regulators in China concerned with the impact if Microsoft takes over Yahoo (NSDQ: YHOO). As such, Alibaba has hired advisers to help negotiate greater independence in the event that the deal does go through, according to the reports. A key issue has to do with board representation, as Yahoo’s Jerry Yang holds one of the four Alibaba seats.

How the company’s non-operational holdings get dealt with is an important issue, considering the fact that a recent estimate put their value higher than Yahoo’s actual business (that was before Microsoft’s bid came in). Add to the fact that time is of the essence to Microsoft, and Chinese regulatory issues start to become significant.

Update: Reuters has a slightly different take on the situation, basically suggesting that Alibaba management will seek to influence how Yahoo’s share are transferred to Microsoft (NSDQ: MSFT). According to the report, Alibaba would definitely seek to get involved in Microsoft-Yahoo talks if they get more serious, as is widely expected.