The Wall Street Journal-20080216-Microsoft-s Yahoo Bid Ruffles China-s Alibaba

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Microsoft's Yahoo Bid Ruffles China's Alibaba

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BEIJING -- Alibaba Group, the Chinese Internet company part-owned by Yahoo Inc., has hired advisers to help it negotiate for expanded management independence in the event its U.S. partner is acquired by Microsoft Corp., a person familiar with the situation said.

Microsoft on Jan. 31 made an unsolicited offer for Yahoo -- then valued at $44.6 billion, or $31 a share -- which Yahoo's board this week rejected. Still, many shareholders and analysts believe Microsoft will ultimately prevail.

Alibaba has already been contacted by Chinese regulators seeking information on how it could be affected by a Microsoft purchase, the knowledgeable person said. The Chinese government "is going to very heavily scrutinize this deal," the person said.

Yahoo owns 39% of Alibaba, which runs Yahoo's Chinese operation as well as several other Web businesses. The stake makes Yahoo the Chinese company's largest shareholder, but Alibaba's management -- led by founder Jack Ma -- has retained effective control over its operations.

That control has been important to Alibaba, which is viewed as a national champion in China, where the government controls Internet content and views foreign Internet companies with suspicion. Alibaba executives are concerned that a possible acquisition of Yahoo by Microsoft could cast doubt on its independence.

Alibaba executives believe Microsoft will succeed in its bid for Yahoo, and has hired lawyers and financial advisers to evaluate issues related to a possible deal -- key among them, how Alibaba could increase management's control in areas such as board composition and voting rights. Alibaba's four-member board currently includes one Yahoo representative, Chief Executive Jerry Yang.

Alibaba hasn't publicly commented on the Microsoft bid. On Friday, Mr. Ma, a former English teacher who built Alibaba into one of China's biggest Web companies, addressed about 8,000 of Alibaba's 8,800 employees at a stadium in the Chinese city of Hangzhou. He said Alibaba management "will always maintain its independence and management control" regardless of who its shareholders are, according to the knowledgeable person.

Alibaba executives believe their existing agreement with Yahoo, the product of a deal announced in August 2005 in which Yahoo invested $1 billion in the Chinese company, gives Alibaba a say in how Yahoo's stake would be transferred, and to whom, in the event of a sale.

Alibaba owns about 80% of Alibaba.com Ltd., the online trading site that raised $1.5 billion in an initial public offering in October and is now the biggest listed Chinese Internet company with a market capitalization of nearly $13 billion. Alibaba also owns a consumer auction site, and online-payment and software businesses, in addition to Yahoo China.