Yahoo, Alibaba Group and SoftBank have reached an agreement in which Alibaba Group will continue to participate in Alipay’s future financial performance, including a future IPO or other liquidity event.
The agreement is consistent with the two agreed-upon principles established at the outset of the negotiations: to structure the inter-company relationship between Alipay and Taobao in order to preserve the value within Taobao and, by extension, within Alibaba Group; and provide that Alibaba Group is appropriately compensated for the value of Alipay.
The agreement establishes the following:
• The agreement preserves the existing relationship between Taobao and Alipay. Alipay will continue to provide payment processing services to Alibaba Group and its subsidiaries (including Taobao) on preferential terms.
• Alibaba Group will license to Alipay certain intellectual property and technology and provide certain software technology services to Alipay and its subsidiaries. Alipay will pay to Alibaba Group, prior to a liquidity event, a royalty and software technology services fee, which consists of an expense reimbursement and a 49.9% share of the consolidated pre-tax income of Alipay and its subsidiaries.
• Alibaba Group will receive no less than $2 billion and no more than $6 billion in proceeds from an IPO of Alipay or other liquidity event. The exact proceeds to Alibaba Group will be determined by multiplying the total equity value of Alipay by 37.5%, subject to the foregoing floor and ceiling amounts.
Alipay provides payment processing services to Alibaba Group and some affiliates, including Taobao, and to third parties. Taobao is China's largest online retail website.
Alibaba Group’s principal shareholders include Yahoo!, SoftBank and Jack Ma and Joseph Tsai. In May, Alipay obtained a license to operate in China from the People’s Bank of China following the restructuring of Alipay. The license will enable Alipay to continue serving Taobao and its other customers in China.