Very few details have emerged thus far. Here’s what the Wall Street Journal has:
Yahoo, which owns around 40% of Alibaba, in mid-May said it was blindsided when Alibaba transferred ownership of Alipay earlier this year to a new company owned by Alibaba Chief Executive Jack Ma. Alibaba and Mr. Ma said the transfer was legal and Yahoo was aware of plans for it.
As part of the proposed agreement between Alibaba and Yahoo, reached last week, Alibaba and Mr. Ma would promise not to hurt the value of Taobao, a giant Alibaba-owned e-commerce site, by using Alipay to siphon off Taobao’s revenue in the future[.]
[ . . . ]
The proposed resolution could also include plans for Mr. Ma’s new company to further compensate Alibaba Group for the Alipay transfer, in part to take into consideration future revenue from processing fees it extracts from websites other than Taobao, the person added.
It’s unclear how much Mr. Ma’s new company paid Alibaba Group for the Alipay transfer.
So let’s go through this in reverse order. First, the question of compensation. Was the Alipay transfer done as an arms-length transaction, or was it a sweetheart deal? How much is reasonable for that very valuable asset? This is all still a mystery, yet it is at the heart of the dispute. It’s difficult to get too excited about this “resolution” until more details about compensation dribble out.
Second, and related, the deal might include compensation based on future revenue. I don’t know about you, but if these guys don’t trust each other, do you actually see them agreeing to some sort of earn-out structure? Looks like a great way to make litigation a foregone conclusion. Strike two.
Third, Mr. Ma promises not to hurt the value of Taobao via use of Alipay. Wow, the devil is sure in the details there, isn’t it? I really, really hope that there was some very good lawyering done here, because that scares the crap out of me.
It sounds sort of like a non-compete, and although I’m sure one could draft in some specific restrictions on Mr. Ma’s future actions, I bet there are about 100 other things he and his advisors will be able to come up with sometime down the road to attempt to sidestep the promise. The question at that point (after it goes to arbitration/court) will be whether Mr. Ma acted in good faith.
I’m starting to get kind of a queasy feeling about this, but I suppose I should withhold judgment until we learn more.