Yahoo to buy stake in Alibaba.com

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HONG KONG -- Yahoo Inc. will buy 10% of a share sale by Alibaba.com Ltd, China's biggest e-commerce firm, as it steps up a battle with Google Inc. and Baidu in the world's second-biggest Internet market.

The U.S. Web giant, at the center of a controversy over the jailing of two Chinese dissidents, is buying into a Hong Kong initial public offering expected to raise about $1 billion for Alibaba.com, which helps small firms market their products.

Yahoo already has a 40% stake in the Chinese firm's parent, Alibaba Group, which took over Yahoo's China operations in 2005 and has been reorganizing it since.

Yahoo China trails its main rivals in the search engine market, worth about $600 million a year, with a 12.5% share, compared with Google's 21% and Baidu's 58%, according to research firm Analysys International.

But Alibaba dominates the business-to-business segment, handling 69% of trade value, and fund managers believe the firm will get even stronger with Yahoo's backing.

The industry is potentially lucrative if more of China's 32 million small and medium-sized enterprises (SMEs) can be persuaded to use the internet.

Trade among Chinese SMEs reached $532 billion in 2007, and will grow by about 15% per year over the next five years, according to Shanghai-based consultancy iResearch. Around one-third of these firms use some kind of online service.

"Alibaba.com is the leader in B2B business. With Yahoo's back-up, it's easier for the company to gain market share," said Kelvin Wu, principal partner at private equity firm AID Partners.

About 73% of Alibaba.com's revenue in the first half of 2007 came from its international online market place, which brings together importers and exporters.

As of June 2007, Alibaba.com hosted 2.4 million supplier storefronts, with on average 2.9 million new product listings per month. Buyers click on product listings and are taken to suppliers' storefronts.

With the firm's customer base growing fast, Goldman Sachs expected Alibaba.com to post a 629 million yuan ($83.78 million) net profit in 2007, a 186% jump from last year.

Alibaba plans to sell 858.9 million shares, or 17% of its enlarged share capital, in its Hong Kong IPO. Other than the portion reserved for Yahoo, 75% of the share sale is earmarked for global investors and 15% for Hong Kong individual investors.

Alibaba.com kicked off premarketing for the IPO on Monday and will start its roadshow on October 15, with a trading debut set for Nov. 6. The deal is being handled by Goldman Sachs, Morgan Stanley and Deutsche Bank.

Yahoo has come under criticism from human rights groups and faces a U.S. lawsuit alleging that it turned over information on the online activities of two Chinese dissidents who were arrested.

One was sentenced to 10 years in prison last year for "incitement to subvert state power" after he e-mailed electronic journals advocating democratic reform and a multiparty system.

The company has said it must comply with the local laws of any country in which it operates and that it was unaware of how the information it provided to Chinese authorities would be used.
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