The Alipay Saga: Yahoo can't do much worse

In her first meeting with Alibaba's Jack Ma, according to Forbes, Yahoo's CEO Carol Bartz decided it would be a good idea to knock Ma down a peg in front of his senior management.

And the relationship went down hill from there.

The two companies have traded jabs in the press over the past two or three years over everything from whether Yahoo provides any strategic value to why talks broke down when Alibaba tried to buy back the 43% stake Yahoo holds in Alibaba.

Now, the dispute has been taken to a whole new level. All of the details are not yet clear, but we know that the Alibaba Group has transferred ownership of one of its crown jewels, Alipay, out of the Alibaba Group and into a company controlled by Jack Ma. Alibaba says the move was necessary for regulatory compliance in China.

Alibaba says Yahoo has known about this since August last year. Yahoo says it has known since 31st March. Either way, Yahoo chose not to disclose this to its investors until last week when the announcement was buried in an SEC announcement.

This issue may be resolved yet, but Yahoo has clearly taken a hit. Since the news broke, Yahoo's shares have fallen from US$18.50 to under US$16.60. And on top of this, in April the company reported its lowest quarterly revenue in six years and Q1 revenues were down 24% year-on-year.

Despite this anemic financial performance, investors had been bidding up Yahoo's share price from a 52-week low of US$12.94 to well over US$18. The only reason for this price spike was investor excitement about Yahoo's stake in Alibaba. There have been endless articles about Yahoo as a China stock. Without that Alibaba story, Yahoo shares would have stagnated at best.

It is hard to know how this will play out, but meanwhile in corporate headquarters in Hangzhou, it is fair to assume that the Alibaba Group owners would not be adverse to making more moves similar to this Alipay maneuver in order to weaken Yahoo's negotiating position and perhaps ultimately forcing Yahoo to sell their stake in the Alibaba Group.

Or at the very least, they might be able to convince Yahoo investors to act in their own self-interest and show Bartz the door.