Yahoo's History of Silence

MAY 26, 2011   THE WALL STREET JOURNAL

By MARTIN PEERS

When it comes to Alibaba, Yahoo says it doesn't want to talk about the past. That won't comfort investors worried about the future.

It was understandable that Yahoo executives opened Wednesday's investor day by talking about Alibaba Group of China, 40% owned by Yahoo. Two weeks ago, Yahoo said Alibaba's ownership of the Alipay online-payments business had been transferred to a company majority-owned by Alibaba Chief Executive Jack Ma. According to Yahoo, Alibaba's board wasn't told at the time.

Reuters

Alibaba Group Chief Executive Jack Ma

Unfortunately, Yahoo executives stonewalled the inevitable questions, saying they had agreed not to "discuss the past." Instead, their message was that negotiations with Alibaba are under way and that two principles had been agreed to. One is that Alibaba should be compensated for Alipay. The other: that future terms for business between Alibaba's auction site, Taobao, and Alipay should keep value on the Taobao side. As Taobao now accounts for most of Alipay's business, the ownership transfer had raised the possibility Alipay could impose fees on Taobao transactions to benefit itself.

Despite these assurances, Yahoo's account of recent events has to cast doubt on the value of any agreement with Alibaba. If one asset can be transferred secretly, how solid is any business deal?

Yahoo co-founder Jerry Yang kept reminding investors that Alipay's need to get a license to operate was crucial, requiring Chinese ownership. But that doesn't justify secretly transferring an asset—if that is what happened. Until the history is cleared up, investors can't be confident Yahoo's China stake is safe.

Write to Martin Peers at martin.peers@wsj.com