Alibaba Group, Yahoo! and SoftBank has announced they have reached an agreement in which Alibaba Group will continue to participate in Alipay’s future financial performance, including a future IPO or other liquidity event. The agreement is consistent with the two agreed-upon principles established at the outset of the negotiations: structure the inter-company relationship between Alipay and Taobao in order to preserve the value within Taobao and, by extension, within Alibaba Group; and provide that Alibaba Group is appropriately compensated for the value of Alipay.
The agreement preserves the existing relationship between Taobao and Alipay. Alipay will continue to provide payment processing services to Alibaba Group and its subsidiaries (including Taobao) on preferential terms.
Alibaba Group will license to Alipay certain intellectual property and technology and provide certain software technology services to Alipay and its subsidiaries. Alipay will pay to Alibaba Group, prior to a liquidity event, a royalty and software technology services fee, which consists of an expense reimbursement and a 49.9% share of the consolidated pre-tax income of Alipay and its subsidiaries.
Alibaba Group will receive no less than $2 billion and no more than $6 billion in proceeds from an IPO of Alipay or other liquidity event. The exact proceeds to Alibaba Group will be determined by multiplying the total equity value of Alipay by 37.5%, subject to the foregoing floor and ceiling amounts.
“Over the last few months, we have worked cooperatively with our partners at Yahoo! and SoftBank to reach an agreement that serves the interests of all parties,” said Jack Ma, Alibaba Group Chairman and CEO. “This agreement is good for Alibaba Group and its stakeholders, including customers, employees and shareholders. Most importantly, Alipay was able to secure the license it needed to continue operating.”
“This is a good outcome for Yahoo! and for our shareholders, as well as all the parties to this agreement,” said Carol Bartz, Yahoo! CEO. “As a result of this constructive process, we have an agreement that preserves the value of Taobao, provides for profit sharing at Alipay, and creates a structure to allow Alibaba Group to participate if Alipay’s value is realized in an IPO or other liquidity event. Alibaba Group and its management team have an impressive track record of value creation and we look forward to participating in Alibaba Group’s—and Alipay’s—continued success.”
“This agreement was in part made possible by the strong long-term relationship and trust that exists between the principals at Alibaba Group, SoftBank and Yahoo!, and also lays the foundation for Alibaba Group to continue its impressive growth under the dynamic leadership of Jack Ma,” said Masayoshi Son, SoftBank CEO. “Alibaba Group is a clear leader in the China Internet business, the largest and fastest growing market in the world, and the close relationship with Alipay will allow Alibaba Group to strengthen that leadership position in the years to come.”
Alipay provides payment processing services to Alibaba Group and some affiliates, including Taobao, and to third parties. Taobao is China’s largest online retail website. Alibaba Group’s principal shareholders include Yahoo!, SoftBank, and Jack Ma and Joseph Tsai. In May 2011, Alipay obtained a license to operate in China from the People’s Bank of China following the restructuring of Alipay. The license will enable Alipay to continue serving Taobao and its other customers in China.