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8/11/2005
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Yahoo Combines Chinese Operations With Auctioneer Alibaba.com

Yahoo Inc. on Thursday said it would pay $1 billion for a 40 percent share of Chinese company Alibaba.com, and would fold its China operations into the online auctioneer, forming a joint Internet company that would challenge leading marketplace eBay Inc. and No. 1 search engine Baidu.com in the growing market.

Yahoo Inc. on Thursday said it would pay $1 billion for a 40 percent share of Chinese company Alibaba.com, and would fold its China operations into the online auctioneer, forming a joint Internet company that would challenge leading marketplace eBay Inc. and No. 1 search engine Baidu.com in the growing market.

The deal creates the only Internet company in China with a leading position in search, and business-to-business, and consumer e-commerce, the companies said in a joint statement. Under the deal, Yahoo would get a 35 percent voting right in Alibaba.com. The overall transaction is valued at $4 billion, and is expected to be completed in the fourth quarter, pending customary closing conditions.

"Yahoo's investment underscores our long-term commitment to the Chinese market," Terry Semel, chairman and chief executive of Yahoo, said. "We believe the combination of Yahoo and Alibaba is the best approach for Yahoo to win in this region."

Yahoo's search operation trailed only Baidu.com, and Alibaba's marketplace operations were second only to eBay in China, rated the second larges Internet market in the world, the Reuters news service reported.

A major strength of the joint company is the combination of a major search engine and marketplace, which is expected to lead to more efficient ways for consumers to find and buy products.

"No one else has that combination," Yahoo spokeswoman Joanna Stevens said.

In choosing to partner in China, Yahoo is following a course similar to its strategy in Japan, where it owns 33 percent of Yahoo Japan, and leaves running the business to local management teams, Stevens said.

"We believe this is the best approach for Yahoo," the spokeswoman said.

The combined company would have a four-person board, with Alibaba.com management holding two seats, and chief executive Jack Ma serving as chairman. Other directors would be Jerry Yang, Yahoo's co-founder and chief; and a representative from Softbank.

Business-to-business and consumer e-commerce in China is forecast to have compound annual growth rates of 94 percent and 83 percent, respectively, through 2007, the two companies said. Alibaba.com has an online community of more than 15 million businesses and consumers, including more than 100,000 businesses that pay between $250 and $10,000 per year for its online services.

The combined company will consist of Alibaba International, an online marketplace; Alibaba China, an online community of small and midsize businesses; AliPay, an online payment service; TaoBao, an e-commerce web site; and Yahoo's Chinese portal, advertising, and search services. Yahoo also plans to contribute its interest n 1Pai, a Chinese e-commerce site for consumers.

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