Yahoo Shares Spike, After Possibility of Alibaba Buying It

Most parents are happy to see their children grow up bigger and stronger than them. When it comes to a parent company seeing its child company grow up bigger and stronger, it must feel a little embarrassing, as in the case of Yahoo and Alibaba.

After rumours emerged that Alibaba is considering making a bid to buy out Yahoo, its shares jumped as much as 4.8% and 3.3% by the end of the trading day to US$16.23. However it has not publicly announced its whole-company bid intention for Yahoo.

Yahoo currently owns 40% of Alibaba, which it purchased back in 2005 for US$1 billion. Although Yahoo has a big share of Alibaba, Yahoo is only valued at US$20.3 billion compared to US$40.4 billion for Alibaba, or about half. The relationship dynamic looks strange and of course, gives more reason for Alibaba CEO, Jack Ma to buy out Yahoo.

Another key reason for Ma to take over Yahoo is to get them off his shoulders about the disputed ownership of Alipay, the Paypal-like online payment system in China. To defend any rights to Alipay, Ma shifted 100% ownership of it to a new entity controlled by himself. Alipay is a much sought after asset, since it is almost the default online payment system in China and has its own plans to go IPO.

There are other suitors who want a minority stake, including TPG Capital and another group led by Silver Lake, which made a bid for about US$16.60 a share.

Alibaba will be seeking to buy back the 40% share that Yahoo owns. Softbank will look to acquire part of Yahoo Japan and private equity companies Blackstone and Bain Capital would take over control over U.S Yahoo operations.

Yahoo has been a tailspin for a while now, as stronger players such as Google and Facebook are eating up its display advertising market share. In September, CEO Carol Bartz was fired after not being able to sustain Yahoo as a dominant internet giant but rather a dormant internet portal.