I read this on WSJ online today (free at Starbucks if you do not count the coffee)
http://www.google.com/search?q=Yahoo+Not+Told+of+Alibaba+MoveBasically, Chinese company Alibaba separated a major piece of business, AliPay, from the main company without the knowledge of its board and investors.
Yahoo (43%) and Japanese company Softbank (33%) are majority owners of this company and have board seats but it did not matter for the founder and CEO to notify even the board. According to the WSJ article, the seperation was in August (of last year) and its was finalized in Q1 of this year.
If a big company is doing this, what about the smaller ones?
Comments
"We believe that Yahoo’s most valuable asset is its 40% stake in Alibaba Group’s still-private holdings, which are separate and distinct from its ownership in the publicly-traded Alibaba.com, which we are essentially getting for free. Among Alibaba Group’s privately held Chinese internet assets is a company called Taobao, which is the leading eCommerce website in China. More merchandise was sold on Taobao last year than on eBay, and Taobao’s merchandise sales are growing 100% annually. We would not be surprised if YHOO’s 40% stake in Alibaba Group alone was ultimately worth YHOO’s entire current market value."
http://blogs.forbes.com/steveschaefer/2011/05/02/greenlights-einhorn-likes-yahoos-alibaba-assets/
Apparently, a partial explanation: "An Alibaba spokesperson told the Wall Street Journal on Thursday that the transfer was made to comply Chinese regulations that bar foreign ownership of online payment services." (although why they didn't tell Yahoo is another issue.)
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The whole issue is concerning and shady, but I think what's remarkable is that, even after this issue, if Alibaba went to the US market and searched for another company to work with, they'd have companies falling over each other to work with them. Apparently the growth is enough for companies to continue to take such risks (although I think some of the more "hot"/widely discussed growth areas, such as Macau gambling, are overdone at least for the time being - not that there isn't going to be more growth (Macau's gambling business is now 4x that of Vegas), but there's SO much discussion and SO much of what casino stocks do being dependent on Macau business, Macau's *so far* unsuccessful attempts to make it be about more than just gambling that could someday be successful in cooling the area off, etc.)
There's been other issues like what happened to Yahoo, but you still have companies wanting exposure to that market - apparently enough to take the risks involved (and CNBC just had discussion of Cigna's inroads into Asia, Wal-Mart buying a Chinese retailer today, as well as Yum Brands taking a restaurant chain in China private. Sanofi apparently expects China to be its number 2 market by 2015. I do think basic needs/staples in emerging markets are certainly more interesting for the longer-term - and really also the shorter-term at this point - than the sort of "hot" things like Macau.)
I've had the view of investing directly in Asia rather than trying to invest in US companies as a roundabout way of Asian exposure, and while investing directly in Asia absolutely has its risks, to quote a BI article this morning: "But really this is the kind of stuff that happens day in and day out in China, with assets changing hands overnight for some reason. ****And somehow, it's always the Western company that loses out." (It really kinda is, it seems.)
(http://www.businessinsider.com/yahoo-protests-against-the-asset-transfer-that-sent-its-stock-diving-2011-5)
I think there are great, exciting companies in Asia that should be looked at and not all companies are capable of such questionable behavior (and enough questionable behavior by some will at some point start to ruin it for those companies who are trying to act in everyone's best interests) but investing there is certainly a risk. Dilution of shares is another issue (not that that's not seen here, but it would appear a bigger issue there.)
There was an excellent article in Wired the other month about companies who - after the issues they've dealt with in Asia (quality of manufacturing or otherwise) - have moved production elsewhere. Still, I remain positive on Asia with the view that the region will continue to evolve during this growth period and there will be problems along the way. I definitely do not have as much exposure to Asia as I did two years ago, but have settled into more of a comfortable longer-term level.
Will China be a dominant force in the world? I do believe that they (and other members of the Asian region) will get a larger and larger seat at the world table over the next 5-10 years. I'm not sure dominant is the best term, as much as that the Asian region will become a larger focus (with the greater focus on Asia, do some of the policies change and things become a bit more transparent over time, given how much of the focus is on the area from the outside world?) and increasingly important. There will be problems, as there has been in every growth situation over time and there is certainly the potential for long-lasting problems if issues are not handled.
To be fair, there is some blame to go for Yahoo as well. They found this at the end of march and waited to notify investors after over a month. But it does not rise to having the board of the company being kept in complete darkness.
Luckily we have disclosure regulation here in US that forces companies to disclose materially important information.