Jack Ma Says Alibaba Has Cash to Buy Yahoo

Jack Ma said that his e-commerce giant Alibaba has readied $20 billion in cash with which to buy Yahoo.

Jack Ma said Monday that his e-commerce giant Alibaba has readied $20 billion in cash with which to buy Yahoo. Because Alibaba is based in China, the proposed buyout raises thorny issues about the security of private data on Yahoo’s millions of users.

Ma had been trying to get Yahoo to sell back its 40% stake in Alibaba without success. Last September Yahoo turned down Ma’s $11 bil. offer to buy back the interest in Alibaba it had acquired in 2005 for $1 bil. Now that Yahoo has become a takeover target by companies like Microsoft and others, Ma is especially eager to buy control of Yahoo to avoid being shackled to another big minority owner.

“We are very interested in Yahoo because our Alibaba Group is so important to Yahoo and Yahoo is also very important to us,” he said at a recent Stanford conference. “We are talking to them, and they are talking to us.”

As recently as last week Yahoo co-founder and 2.9% shareholder Jerry Yang had denied any interest in selling Yahoo.

The rift between Alibaba and Yahoo has become increasingly apparent in recent months. Yahoo shareholders were irked by what they felt had been a stealth spinoff of Alipay to a company owned by Ma. After months of hostile wrangling then Yahoo CEO Carol Barth and Ma agreed that Alibaba would receive between $2 bil. and $6 bil. in the event of an Alipay IPO or any other liquidation.

The inherent conflict between Yahoo and Alibaba cultures emerged in 2010 after Yahoo issued a statement in support of Google in its standoff against China’s government over efforts to control search results. Alibaba, which owns Yahoo China, issued a separate statement calling Yahoo’s stance “reckless given the lack of facts. Alibaba doesn’t share this view.”

In February Alibaba executives visited Silicon Valley without paying a courtesy call on Yahoo, a slap in the face to a partner that was becoming an embarrassment because of its increasing weakness in the search and advertising segments, keeping it constantly in the news as a perpetual takeover target.

Since Ma first announced his interest in buying Yahoo on Sept. 30, Yahoo shares have jumped 19 percent to $15.70 as of Monday’s closing on speculation of a bidding war. Its shares had also risen in 2008 during the run-up to Microsoft’s $47.5 billion bid which was rebuffed by Jerry Yang and his board of directors. Today the board is deemed less supportive of Yang.

Ma is said to be friends with Yang, suggesting that they may be working out a scenario that could satisfy both Ma’s desire to be released from Yahoo’s nettlesome 40% ownership stake and Yang’s apparent desire to take Yahoo private and bring it back under his control. A successful buyout by Alibaba could be followed by a spinoff of Yahoo and a sale to Yang. The trick would be to do structure the series of transactions in a way that avoids any apparent conflicts of interest or self-dealing that could result in shareholder suits against both Alibaba and Yang.

The first major hurdle to accomplishing that buyout is the wariness of U.S. regulators to turn over to Chinese control a company that holds personal data on so many American users. Only recently regulators blocked China telecom giant Huawei Technologies from buying American companies. Early this year Huawei was forced to withdraw plans to buy assets of 3Leaf Systems, a Santa Clara cloud-computing firm. U.S. telecom carriers have also been pressured by regulators to back away from deals to buy equipment from Huawei. In 2009 Congress chastised Yahoo executives for having handed over information to Chinese authorities about two pro-democracy Chinese journalists in 2007.

The clear hurdle to buying Yahoo is apparent to all, but Ma remains undeterred.

“Do you know how much it will cost to acquire Yahoo?” he said at a recent news conference. “It needs $20 billion based on the company’s valuation today. We have the most cash reserves among Internet companies, and we have already prepared $20 billion.”