Alibaba Group CEO Jack Ma expressed his company’s interest in buying Yahoo (NASDAQ:YHOO) at a gathering in the U.S. on Friday, saying that he had already been approached by private-equity firms and others about a potential deal.
The possibility of the Chinese e-commerce platform, which already has an extensive presence in the U.S., buying out the U.S. company, which uses its Taobao.com platform to reach Chinese buyers, isn’t likely to raise anti-trust issues in the U.S., given the size and amount of competition for Internet platforms in the U.S., but national security is still a concern.
“One potentially big question mark would be whether the proposed deal would be viewed as having national security implications under CFIUS (Committee on foreign investment in United States),” said Neil Torpey, chair of the Hong Kong office of U.S. law firm Paul Hastings LLP, which specializes in corporate law, including capital markets and mergers and acquisitions.
“While it isn’t obvious that Yahoo’s business is critical to U.S. national interests, some parties may not want to see such a heavily-used U.S.-based web site acquired by a non-U.S. party, and others might raise a CFIUS issue purely for political purposes. If the political factor becomes part of the calculation, it’s very hard to predict what the outcome might be.”
While Alibaba is a private company without government ownership, the Chinese Communist state has a heavy role in overseeing free enterprise. When Lenovo Group purchased IBM’s (NYSE:IBM) personal-computer assets in 2005, Lenovo had to agree to move some operations away from an IBM campus where employees performed sensitive work in order to get CFIUS approval. Of course, at the time, Lenovo was 30% owned by the Chinese government. Alibaba has already made two small acquisitions in the U.S. Internet business, acquiring two e-commerce companies last year.
A possible deal could be structured so that Alibaba would split off and gain control of Yahoo’s Asian assets, while leaving Yahoo’s other assets with other investors. Yahoo owns thriving businesses in Asian markets like Taiwan and Hong Kong, and has a 35% stake in Yahoo Japan Inc.
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Internet companies doing business in China must hand over personal information to the government upon request. Evidence provided by Yahoo was used in 2005 to sentence a journalist to 10 years in prison. In 2010, when Google (NASDAQ:GOOG) said it would no longer censor search results in China, it had to shift its search servers from mainland China to Hong Kong.