The Wall Street Journal reports,"Alibaba Group Holding Ltd. is in discussions with its major shareholders to reclaim a formal stake in its strategically important online-payment affiliate, said people familiar with the matter".
"A stake in the affiliate, called Alipay, could significantly raise the future value of Alibaba, now preparing an initial public offering already expected to be one of the largest in U.S. history. Even if an agreement over Alipay is reached, it isn't expected to take effect before the IPO, the people said, and would face regulatory review in China.
Alipay is central to Alibaba's operations, processing its e-commerce payments similar to the way PayPal handles transactions for eBay Inc".
"One scenario being discussed with a major shareholder would have Alibaba taking a one-third stake in Alipay, said one of the people familiar with the talks.
The Alipay ownership discussions come as Alibaba is gearing up for an IPO late this summer that could raise more than $20 billion. With such a huge supply of shares potentially coming to market, the company must drum up significant interest among investors if it wants to sell those shares at a high price.
The possibility of direct ownership in Alipay could add to investor excitement, enabling Alibaba's future shareholders to benefit from Alipay's growth, especially in its payment services for non-Alibaba clients and in its financial services. Alipay doesn't disclose its profit or revenue.
The Alibaba-Alipay relationship has nonetheless been controversial, and demonstrates an often interconnected web of Chinese corporate ownership.
Alibaba founder Jack Ma separated Alipay from the group in 2011, saying the spinoff was necessary for Alipay to obtain a license to continue its business under then-new Chinese government regulations.
The move prompted large Alibaba investor Yahoo Inc. to complain it wasn't made aware of the transfer of Alipay until after it was enacted. Some investors were angry that the shift devalued their holdings.
Alibaba said at the time that its board, on which Yahoo co-founder Jerry Yang held a seat, had previously discussed the possibility of such a spinoff. The two firms, and another major investor SoftBank Corp., later reached an agreement over terms of the separation.
Today, Alipay is controlled by a parent company in which Mr. Ma holds a 46% stake. Other Alibaba co-founders also hold stakes in Alipay's parent company. That parent company also owns the unit that operates Alipay's money-market fund, Yu'E Bao.
SoftBank, a Japanese Internet and mobile service company, has an about 37% stake in Alibaba Group. Yahoo, its second-largest shareholder, owns 24% and Mr. Ma owns roughly 7%.
Following the 2011 spinoff, Alipay and Alibaba agreed that Alibaba would be paid between $2 billion and $6 billion if Alipay were to go public. Their agreement also sought to ensure that Alipay didn't try to overcharge Alibaba for its payment services. The direct ownership structure under discussion would replace that framework agreement".
