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Yahoo announces tax-free spinoff of Alibaba stake
 By Sophie ESTIENNE
 New York (AFP) Jan 28, 2015


China government agency slams Alibaba over management
Shanghai (AFP) Jan 28, 2015 - A powerful Chinese regulator on Wednesday blasted e-commerce giant Alibaba for allowing "illegal" actions on its multi-billion-dollar online shopping platform, accusing executives of narcissism in an unusual government dressing down of a major domestic company.

The State Administration for Industry & Commerce (SAIC), charged with maintaining market order in China, said in an official report that Alibaba's platforms had hosted "long-standing" violations of online business laws and regulations.

It took aim at Taobao, Alibaba's consumer-to-consumer platform which is estimated to hold more than 90 percent of the Chinese market, and Tmall.com, believed to command over half the market in China for business-to-consumer transactions.

"Alibaba has not paid enough attention to illegal operations on its online trading platforms or taken effective measures to tackle them... placing itself in the biggest credibility crisis since its establishment," the SAIC said.

The SAIC has become known for its crackdowns on foreign companies accused of violating China's anti-monopoly law. But its public dressing-down of such a prominent Chinese firm is unprecedented.

The regulator accused Alibaba of poor oversight of its employees as well as merchants and products on its platforms, disorganised sales management and a flawed rating system for users.

Business magazine Caixin described the SAIC document as a "bombshell aimed at Alibaba".

Alibaba, founded by Jack Ma in 1999, is China's biggest e-commerce company. It listed on the New York Stock Exchange last year in the world's largest public offering to date, which made Ma China's richest person.

The regulator revealed for the first time that SAIC gave Alibaba what it called "administrative guidance", a form of official censure, in July last year ahead of the IPO.

It also explicitly stated that the meeting was held privately "in order to avoid impacting the progress of work before Alibaba's listing".

In one of its requests to the e-commerce giant, the SAIC ordered executives to "overcome arrogance". "In the eyes of the law, there is no special market entity," it said.

"The holding of the administrative guidance session has... awakened them (executives) from narcissism," the document said. It did not say whether Ma himself attended.

Taobao let unregistered merchants sell on its platforms, allowed trade in fake goods and failed to manage misleading advertising, the SAIC said.

In a separate survey published last week, the SAIC said Taobao had the lowest rate of authentic goods among a group of six e-commerce companies, with only 37.25 percent of 51 products sampled found to be genuine.

Taobao responded on Tuesday, accusing the regulator of improper sampling for the survey in a microblog post, which was later removed.

On Wednesday, Alibaba said it would take responsibility for cracking down on fake goods, but added it would file a complaint against an SAIC official for "procedural misconduct" in the survey process.

Yahoo is spinning off its stake in Chinese Internet giant Alibaba, splitting off the valuable holdings in a move that sidesteps taxes.

The strategy laid out on Tuesday aims to deliver more cash for shareholders than an outright sale of the $40-billion stake, avoiding a hefty tax bill, and to help Yahoo's efforts to refocus under chief executive Marissa Mayer.

Mayer told a conference call the deal "maximizes value for shareholders" and avoids a potential tax bill of up to $16 billion under a traditional sale of the stake.

She said the move is part of a broader effort to help Yahoo's "remixing" of its activities around mobile Internet, video and other forms of online media.

The spinoff creates a new entity to hold Alibaba shares, in a move responding to concerns of activist shareholders who want the struggling California group to extract value from the holdings.

Shares in Yahoo jumped 6.69 percent to $51.20 in after-hours trading as investors cheered the move.

Yahoo said its board authorized creation of an independent investment company called SpinCo to hold the Alibaba shares. SpinCo would be totally owned by Yahoo shareholders.

Yahoo's current market value is about $45 billion, most of which is in Alibaba shares. Yahoo bought a 40-percent stake in the Chinese online giant in 2005 for $1 billion.

Yahoo chief finance officer Ken Goldman said the plan is a "unique spinoff" that places the Alibaba stake in a registered investment company in a "clean transaction."

Yahoo will continue to operate its core business and hold its 35.5 percent stake in Yahoo Japan.

Goldman said Yahoo is "open minded about alternatives for value creation" of the stake in Yahoo Japan, whose value is estimated at $7 billion.

- Profits lower -

Yahoo said separately its profit in the fourth quarter fell 52 percent from a year ago to $166 million while revenue was essentially flat at $1.25 billion.

"Our performance in the fourth quarter and in 2014 continues to show stability in our core business," said Mayer.

Revenue from users accessing Yahoo sites on mobile devices rose some 23 percent in the quarter to $254 million, highlighting the company's effort to connect with users on the go.

Yahoo also struck a deal to be the primary search engine for the Mozilla Firefox browser in North America, which should help it compete against market leader Google in search and related advertising revenues.

Microsoft Bing powers Yahoo searches in an alliance struck by the companies.

"Our new partnership with Mozilla gives us reason to be optimistic," Mayer said of Yahoo gaining ground in a valuable online search market dominated by Google.

The Alibaba spinoff will add to the $9.7 billion already returned to shareholders from Alibaba and bring the total amount to nearly $50 billion.

Yahoo said the spinoff is expected to occur in the fourth quarter, following the end of a "lockup" agreement on the shares with Alibaba.

The deal also requires review by US tax authorities.

Investors were concerned about Yahoo taking a huge tax hit from its sale of Alibaba shares, but the spinoff announced Tuesday was done "elegantly" and should ease those worries, said independent analyst Rob Enderle of Enderle Group in Silicon Valley.

"That was the good news," Enderle said.

"The bad news is that top line and bottom line performance are down, and Mayer needs some kind of sustained growth to take her off the hot seat."

Financial performance of the California-based Internet pioneer had been shielded in the market by its lucrative stake in Alibaba.

That shield has been spun off.

"Yahoo has been protected by how well Alibaba is doing, and they don't get that any more," Enderle said.

"Their own performance hasn't been that good; investors are likely going to take their profits and run."

Yahoo will continue to watch for opportunities to make smart acquisitions, but isn't considering any major buys unless they line up with the company's technology priorities, Mayer said.

Yahoo has bought dozens of startups since Mayer, a former Google executive, took the helm in 2012.

Global Equities Research's Trip Chowdhry referred to Mayer as an "administrative" type of chief executive and gave Yahoo co-founder credit for the company's shrewd stake in Alibaba.

"He's the person who decided to invest in Alibaba and Yahoo Japan," Chowdhry said of Yahoo co-founder Jerry Yang.

Yang made the Alibaba purchase in 2005 before leaving the company in 2012.


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