Alibaba Group, the large Chinese e-commerce company, is in talks with major shareholders to buy back stake in its online-payment affiliate called Alipay. By increase its stake in Alipay, it could significantly raise the future value of Alibaba. Alibaba is preparing for an initial public offering and is expected to be one of the largest in U.S. history.
If an agreement of Alipay is decided, it will not likely take effect before the IPO and would face regulatory review in China. Alipay processes e-commerce payments similar to how PayPal works with eBay. Alipay controls China’s largest money-market fund with assets of $87 billion. Alibaba reportedly wants a one-third stake in Alipay.
Alibaba founder Jack Ma separated Alipay from from Alibaba in 2011 and said that the spinoff was necessary for Alipay to obtain a license to continue its business under Chinese government regulations at that time. When that move was made, large Alibaba investor Yahoo! complained that it was made aware of the transfer of Alipay until after it was enacted. Some investors said that the shift devalued their holdings.
At that time, Alibaba said its board had previously discussed the possibility of such a spinoff. Yahoo! co-founder Jerry Yang held a seat on the board. Alipay is now owned by a parent company where Jack Ma has a 46% stake. Other Alibaba co-founders also hold stakes in the Alipay parent company. The parent company operates Alipay’s money-market fund called Yu’E Bao. Alibaba Group is owned by SoftBank (37%), Yahoo! (24%), and Jack Ma (7%).
When the spinoff took place, Alipay and Alibaba agreed that Alibaba would be paid between $2 billion and $6 billion if Alipay went public. If Alibaba gains ownership of Alipay again, then the framework agreement would be replaced.