Yahoo (YHOO) and Alibaba.com, one of China's largest e-commerce company, today announced a definitive agreement to form a long-term strategic partnership in China. Under the terms of the agreement, Yahoo will contribute its Yahoo China business to Alibaba.com and the two companies will work together in an exclusive partnership to grow the Yahoo brand in China. Additionally, Yahoo is investing $1 billion in cash to purchase Alibaba.com shares from the company and other shareholders.

The agreement gives Yahoo an approximately 40 percent economic interest with 35 percent voting rights, making it the largest strategic investor in Alibaba.com.

The combination will create one of the largest Internet companies in China, and the only Internet company in China with a leading position in the key growth sectors of business-to-business e-commerce, consumer e-commerce, online payments, communications and search.

The combined entity will consist of: Alibaba International, the world's largest online marketplace for global trade; Alibaba China, the largest online small- and medium-sized enterprise (SME) community in China; AliPay, China's leading online payment service; Taobao, China's most popular e-commerce website; and, the Yahoo China properties, which includes the Yahoo China portal and its communications and advertising services, Yahoo Search Technology, and 3721, a leading keyword search service. Yahoo also intends to contribute its interest in 1Pai, one of the leading consumer commerce offerings in China, into Alibaba.com.

"Yahoo's investment underscores our long-term commitment to the Chinese market. We believe the combination of Yahoo and Alibaba is the best approach for Yahoo to win in this region," said Terry Semel, chairman and chief executive officer of Yahoo. "Together, we will create one of the largest Internet companies in China, and our combined assets will make us the only company that has a leading position in all the key sectors that are driving explosive Internet growth in China such as search, commerce and communications."

The partnership model is the first of its kind for an Internet company in China. By adding the Yahoo China brands to Alibaba.com's businesses, the new partnership will allow the companies to respond quickly to local market needs and develop innovative new products and services for customers in China's dynamic and rapidly-evolving economy. The partnership also leverages one of the best local management teams, while taking advantage of Yahoo's global resources.

"Teaming up with Yahoo will allow us to deliver an unmatched range of e-commerce services to businesses and consumers in China," said Jack Ma, chairman and chief executive officer of Alibaba.com. "With the addition of Yahoo China to Alibaba.com's business, we're expanding our services to provide a leading search offering to China's Internet users. In China, Alibaba.com is winning in B2B, winning in C2C, winning in online payments and now we're going to win in search."

The combined entity will have a four-person board. Management of Alibaba.com will hold two seats, with CEO Jack Ma serving as the board's chairman. Other directors will include Jerry Yang, Yahoo's co-founder and Chief Yahoo, and a representative from Softbank.

"We have always had a long-term commitment to China and even more so to the development of its Internet industry," said Jerry Yang. "We're confident that Yahoo is putting its resources behind the right management team, which operates according to similar values as we do, and shares the same vision for providing the most essential and relevant services to consumers and businesses."

This partnership will also allow both companies to leverage Alibaba.com's strong community of more than 15 million businesses and consumers, which includes over 100,000 businesses who currently pay between $250 and $10,000 per year for Alibaba.com's online services.

Business-to-business e-commerce is growing faster than any other segment in China, and is anticipated to grow at a compound annual growth rate (CAGR) of 95 percent from 2004 to 2007 (source: National Bureau of Statistics of China and the State Administration of Industry and Commerce and IDC). Additionally, the consumer e-commerce segment in China also has high growth potential, projected to grow at an 83 percent CAGR from 2004 to 2007 to become a $2.5 billion market (source: iResearch Inc., China Online Auction Report).

The transaction is subject to customary closing conditions and is expected to be completed in the fourth quarter of 2005. The overall transaction is valued at more than US$4 billion.

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