Alipay Solo Compensation Doubts: Ma Yun Repurchase Possibility Reduced

"There is no interest in the world."

This is May 2011.

At that time, negotiations were just beginning, but as time went on, this sentence was verified.

July 29th, the United States

After the announcement of the agreement, Alibaba Ma Yun, YAHOO CEO Carol Bartz and Softbank Sun Zhengyi gave a satisfactory evaluation of the agreement.

An agreement has completely cut off the relationship between Alipay and YAHOO and Softbank, and the cheque that needs to be cashed has not dispelled the doubts of investors.

Doubt 1 how does non Taobao business realisk?

According to the agreement, the compensation will be implemented in two stages. First, Alipay will pay the 49.9% of its pre tax profit to Alipay group before its listing, as the "intellectual property licensing fee and software technology service fee" to the Alibaba group.

TimMorse, chief financial officer of YAHOO, did not elaborate on the valuation method of the amount of return on the paction, only saying that "it is based on many different complex factors".

Earlier, when TimMorse attended the 2011 Annual investor conference in YAHOO, he said that the focus of negotiations with Alibaba was "Alipay's future potential value increment in the non Taobao business sector". Compensation is based on the value of the "non Taobao business" now and in the future.

The current situation is that after the agreement, Alipay officially divorced from Alibaba group, Taobao is still a subsidiary of Alibaba group, and Alipay's largest customer.

In Alipay's "Taobao business", Cai Chongxin, chief financial officer of Alibaba group, revealed that Alipay currently charges fees from merchants who trade on Taobao, and the cost is paid to Taobao by Taobao to ensure that services are provided.

Under the agreement, Alipay has pledged to continue to provide excellent payment services to Alibaba group and its subsidiaries including Taobao, with the terms of "preferential terms". The agreement between the two sides is 50 years and will automatically renew for 50 years thereafter.

Obviously, "non Taobao business" is the meaningful revenue for YAHOO now.

Public information shows that Taobao accounts for about 50%. of Alipay in terms of paction volume, while Alipay has just realized profit and loss balance in 2010, and has only made a slight profit. In 2010 Alipay earned less than $60 million from third party businesses outside Taobao.

Internet analyst Xie Wen believes that Alipay and Alibaba are still "tight" from the point of view of the agreement.

Analysys International analyst Zhang Meng believes that Alipay has a large user volume, the small and medium-sized business platform still has the advantage of "user traffic", there is room for development.

"However, at present, the income of the third party payment industry mainly comes from the handling fee of online pactions, and the ratio of fees is about 3/1000 to five, and profits are depressed very low.

The development of offline business, such as mobile payment and POS machine collection, will take 3-4 years, and there will be no explosive growth in corporate profits for a short period of time.

Doubts 2 Alipay post listing compensation how to raise?

According to the agreement, the one-time cash return obtained by Alibaba group is 37.5% of the total market value of Alipay when it is listed, and the amount of return will be no less than 2 billion US dollars and not more than 6 billion dollars at the price of IPO.

By this valuation, Alipay's total valuation will be between 5 billion 300 million -160 billion dollars.

According to the shareholding ratio, YAHOO holds 39% of Alibaba group and will receive a cash return of 780 million -23.4 billion dollars.

Ma Yun and Cai Chongxin will set up a Special Purpose Company "IPCo" under the framework agreement, which will issue a 7 year interest free commitment note to the Alibaba group at $500 million.

According to the explanation of Alipay's responsible person, that is, Alipay will not be listed in 7 years. IPCo will pay 500 million dollars to Alibaba group in advance, and will pay 1 billion 500 million -55 billion dollars after listing. It will guarantee 50 million shares of Alibaba group by Ma Yun and Cai Chongxin.

In addition, if Alipay fails to realisse matters within 6 years after the entry into force of the agreement, including the public offering of shares or the pfer of the company, the scope of the payment amount can also be increased correspondingly.

Alibaba, YAHOO and Softbank believe that the resolution conforms to the two principles, that is, to ensure that the relationship between Alipay and Taobao can maintain the value of Taobao, thereby ensuring the value of Alibaba group. Meanwhile, Alibaba group will receive reasonable economic returns.

However, the capital market did not seem to buy it. YAHOO shares slipped another $0.02 on Monday to $13.1 a share, which is close to its lowest level in the last 52 weeks.

ColinGillis, an analyst with BGCFinancial, a US investment organization, said YAHOO did not get much benefit from the value pfer. The key problem was that although the three parties finally reached an agreement, it did not solve a deep-seated problem, namely, how YAHOO turned the control of the Alibaba group's paper into cash flow.

An investment source told Nandu reporters that the equity settlement agreement shows that YAHOO can only expect Alipay's cash compensation, and can no longer enjoy Alipay growth after listing.

"Moreover, the timing of listing and the source of post market compensation have brought great uncertainty to the deal."

Internet analyst Xie Wen said, "after the listing of 2 billion -60 billion from where" there is no clear information.

"These 2 billion are used to cash in, not to enhance the strength of the company.

Will investors accept whether it is to sell shares through private equity or raise capital in the capital market?

Doubts about the 3 repurchase big play still sing?

At the Alibaba B2B shareholders' meeting held this year, Ma Yun once revealed the communication between YAHOO and YAHOO on equity repurchase in 2010.

"It's been very good, YAHOO has agreed, but the critical moment of the concrete plan is suspended."

In fact, in the Alibaba's view, after all these years, YAHOO's investment in Alibaba has long been profitable, with a conservative estimate of over $10 billion.

According to the agreement signed between Alibaba and YAHOO in August 2005, YAHOO replaced about 39% of Alibaba group with 1 billion US dollars in cash and YAHOO assets in China.

At present, the industry's most conservative estimate of Taobao's valuation is more than 100 billion yuan, so YAHOO's interest in the three panning companies will exceed at least 6 billion dollars.

Alibaba B2B, YAHOO is still in the Alibaba B2B company has more than 2 billion 150 million U.S. dollars (the initial market share of 35.5%, 2009 holdings of about 5%-6%) stock value (based on the July 28, 2011 real time stock price and the exchange rate of the day).

In terms of Alipay, YAHOO is expected to receive a cash return of 780 million -23.4 billion dollars and share profits every year after listing.

But because of this, over the past few years, YAHOO has taken the attitude of not letting down the Castle Peak. It has refused to let go of Alibaba's Taobao and Alipay's potential. It also made it difficult for Alibaba to repurchase shares.

According to Forbes's website, even at the beginning of this year, Ma Yun made a proposal to YAHOO to buy 15% stake in Alibaba group at a price of 3 billion 500 million US dollars.

Now, Alipay has officially separated from the Alibaba, does it add favorable factors to the buyback of Ma Yun?

In response, a venture capitalist told reporters in the south that Ma had released the information "do not exclude the group's overall listing" to the market. This is more in line with YAHOO and Softbank's idea of "withdrawal from the market price after the listing of Alibaba group". There will be no embarrassment of "investors in the group level, splitting subsidiaries".

"If the three parties fail to reach an agreement in the negotiation of Alipay, the possibility of the listing of the group as a whole will not exist and the possibility of repurchase will be further reduced."

Internet analyst Xie Wen believes that after Alipay is divorced from Alibaba, it may be necessary to introduce new funds for further development.

"Ma Yun is a major shareholder of Alipay holding company. There will be a conflict between the demand for capital and money."