E-commerce giant Alibaba will receive between $2 billion and $6 billion from an eventual IPO of the controversially spun-off payment company Alipay, representing 37.5 percent of its total market value, the company announced on Sunday.
Alibaba and its major shareholders Yahoo and Japan’s Softbank reached an agreement late on Friday that Alipay will continue to provide payment service to Alibaba businesses on preferential terms and Alibaba will get reasonable economic returns from Alipay, according to a press release.
Alipay will pay Alibaba for the use of its intellectual property and technology service, which was responsible for 49.9 percent of Alipay’s profit. After Alipay goes public it can stop paying the license fees.
“Most importantly, the agreement ensures Alipay develops safely, healthily and sanely with the third party payment license,” Ma Yun, Alibaba’s chairman and CEO, was quoted as saying in the press release.
Ma has said in the past that he transferred Alipay out of Alibaba to a separate holding company to ensure that it continues to be licensed as a third-party payment provider in China, which can withhold licenses from such companies that have foreign ownership.
However, the move was controversial because big shareholders Yahoo and Softbank did not formally approve it.
But the new deal has been welcomed by both shareholders.
“This is a good outcome for Yahoo and for our shareholders. The deal preserves the value of Taobao, provides for profit sharing at Alipay and ensures Alibaba will participate if Alipay’s value is realized at an IPO,” said Yahoo’s CEO Carol Bartz.
However, whether this deal signals the end of the Alipay dispute remains to be seen.
“Alipay hasn’t released a schedule for its IPO, which means the Alipay dispute hasn’t ended yet. It will only end when Alipay goes public,” said Feng Lin of China e-Business Research Center.
Yahoo was forced to sell its shares in Alipay but the agreement is better than nothing, Feng said. Yahoo’s investors regard their stake in Alibaba as their “Asian core assets”. Alipay has been valued at between $5.3 billion and $16 billion, according to Jefferies Equity Research.
Alipay was among the first group of payment companies to get a third party payment license from China’s central bank in May.