Investors who once viewed Yahoo shares as a cheap way to get exposure to the soaring Chinese internet sector, because of its 40 per cent stake in China's Alibaba group of websites, are rethinking that plan after what many fear is an irretrievable breakdown in the relationship between the companies.
Yahoo shares, which plunged last week amid an escalating war of words between the two sides, continued their slide yesterday, even as Yahoo said it was engaged in "productive negotiations" to resolve the situation. The statement left it unclear whether any resolution would mean making up, or breaking up.
Alibaba sold a 40 per cent stake to Yahoo for $1bn (£615m) five years ago, and while Yahoo's business in the West has weakened in the face of competition from Google, some analysts calculate that the value of the Alibaba stake may account for more than two-thirds of Yahoo's entire market valuation.
It emerged last week that Alibaba has transferred ownership of one its most important businesses, a payments website called Alipay, to another private company controlled by the chief executive of Alibaba, Jack Ma. The two sides sparred in public about whether the transfer had been kept secret from Yahoo and whether Alibaba was properly compensated for the transfer.
"Alibaba and its major stockholders, Yahoo and Softbank, are engaged in, and committed to, productive negotiations to resolve the outstanding issues related to Alipay in a manner that serves the interests of all shareholders as soon as possible," the companies said in a joint statement released on Sunday night and aimed at cooling tensions – and market nerves.
Yahoo shares did not perk up, however. Rory Maher, an analyst at Hudson Square Research, abandoned his buy recommendation on Yahoo shares yesterday. "We believe there is a real risk that the Alipay restructuring is the first step in an attempt by Alibaba to reduce Yahoo's role as a partner," he said. "We note recently France's Groupe Danone saw two different Chinese joint venture partners orchestrate similar restructurings, both ending in modest cash purchases of its shares for little profit above their original investment."