NEW YORK (AP) — Shares of Yahoo Inc. tumbled Wednesday after the company disclosed changes at Alibaba Group, one of China's most successful Internet companies, in which Yahoo owns a 43 percent stake.
THE SPARK: Yahoo said in a regulatory filing that Alibaba has spun off its online payment business, Alipay, into a separate company majority-owned by Alibaba's CEO Jack Ma. The company said the move was made to "expedite obtaining an essential regulatory license."
Yahoo said it's in discussions with Alibaba about the terms of the restructuring. But investors were spooked that Alipay was transferred to Ma's control before terms were finalized with Yahoo.
THE BACKGROUND: Analysts believe that much of Yahoo's value now lies in its overseas holdings, rather than its struggling U.S.-based operations. Many shareholders have been hoping that Yahoo will sell some of its Asian assets to raise billions that could either be used to buy back shares or finance an acquisition of a hot startup that could help get people excited about Yahoo again.
THE ANALYSIS: Analyst Gene Munster at Piper Jaffray said the spin-off was prompted by regulatory concerns about foreign ownership of a Chinese payments processor. He expects Yahoo to be compensated for the move.
He said investors are concerned that spinning out Alipay also puts Yahoo!'s ownership in e-commerce site Taobao, another Alibaba subsidiary, at risk. However, he noted that the regulatory concerns about Alipay don't apply to Taobao because Chinese authorities accept foreign ownership of e-commerce sites.
In a research note, Munster said the stock decline presents a buying opportunity for investors.
SHARE ACTION: Yahoo shares fell $1.56, or 8.4 percent, to $16.99 in afternoon trading.
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