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Edition: U.S. Article Comments (0) Follow Reuters Facebook Twitter RSS YouTube Read Analysis: Could a cyber war turn into a real one for U.S.? 31 May 2011 Debt-limit hike fails in House in symbolic vote 31 May 2011 On 911 call, Casey Anthony said tot was missing for 31 days 31 May 2011 Dutch seaside cell for Mladic 31 May 2011 Blake Lively "nude" pictures fake, publicist says 31 May 2011 Discussed 61 Judge voids controversial Wisconsin union law 51 Speculation grows over Sarah Palin’s 2012 plans 51 Air France jet crashed nose-up after 4 minute ordeal Watched Massive Australian waterspout caught on film Mon, May 30 2011 Scientists revive ancient spider in stunning 3D detail Tue, May 24 2011 GM pulls the plug Fri, May 27 2011 Smart Money: Promise, drama in Yahoo's Asian assets Tweet Share this By Alexei Oreskovic SAN FRANCISCO (Reuters) - Yahoo CEO Carol Bartz is known as a strong-willed and straight-talking leader, but some top money managers are betting she can mend fences and compromise with crucial partners in China. Shares of Yahoo... Email Print Related News Exclusive: Yahoo, Alibaba reach deal over Alipay: sources Tue, May 31 2011 Microsoft board backs Ballmer over Einhorn Thu, May 26 2011 Einhorn set to acquire NY Mets stake for $200 million Thu, May 26 2011 Hedge fund star Einhorn calls for Microsoft's Ballmer to go Thu, May 26 2011 Yahoo says makes headway in Alibaba talks Wed, May 25 2011 Analysis & Opinion Deals wrap: Wanting a bigger voice Tech wrap: Microsoft backs Ballmer Related Topics Technology » Personal Finance » Media » China » Smart Money » The Yahoo! offices are pictured in Santa Monica, California April 18, 2011. Credit: Reuters/Mario Anzuoni By Alexei Oreskovic SAN FRANCISCO | Wed Jun 1, 2011 12:40am EDT SAN FRANCISCO (Reuters) - Yahoo CEO Carol Bartz is known as a strong-willed and straight-talking leader, but some top money managers are betting she can mend fences and compromise with crucial partners in China. Shares of Yahoo Inc, at around $16, are just over half what they were in 2008 when Microsoft came calling, never mind the Internet bubble highs of a decade ago. But the stock's potential rebound attracted top hedge fund managers David Einhorn of Greenlight Capital, Philippe Laffont of Coatue Capital, Anand Parekh of Alyeska Investment Group and Ricky Sandler of Eminence Capital in the first quarter. The buying spree made Yahoo one of the biggest additions to portfolios of the Smart Money 30, a group of the largest stock-picking hedge funds, according to Thomson Reuters data. Analysts say most investors have undervalued the most exciting part Bartz's Yahoo portfolio: its substantial Asian assets, which include a 43 percent stake in China's Alibaba Group and a 35 percent stake in Yahoo Japan. But Bartz has had a tough time dealing with some of her Asian partners, particularly Alibaba Group founder Jack Ma, as investors discovered in early May. That's when Yahoo revealed that online payment company Alipay, an important piece of its Chinese investment, had slipped through its fingers as a result of an asset transfer that raised questions about what kind of payout Yahoo's Asia assets will deliver. Yahoo shares tumbled 12 percent in the days that followed. Bartz got off to a bad start with Ma, a former English schoolteacher, by criticizing his management of Yahoo's brand in China during their first meeting in 2009, according to a person familiar with the matter. And Ma was subsequently rebuffed in efforts to repurchase some of Yahoo's stake in his company. The two companies are currently in negotiations over how to compensate Yahoo for Alipay, an Alibaba subsidiary that was transferred to a separate entity controlled by Ma in order to meet Chinese regulations relating to foreign ownership. But the Alipay transfer was in fact a case of "bad news is good news," according to Adam Seessel, portfolio manager of the RiverPark/Gravity Long-Biased Fund, which counts Yahoo as its largest position. Ma values his reputation on the world business stage too much to try to wrest control of the assets away from Yahoo without offering compensation, Seessel said. Instead, he reckons Ma will use his leverage to force Bartz's hand at the negotiating table and make Yahoo sell back its entire 40 percent stake in Alibaba. "There's no risk that they're going to lose these assets," he said of Yahoo. "What's happened is the timetable for monetizing these assets has been radically shortened because Jack Ma wants his stake back." To be sure, the scenario seems too risky for some investors. "There's more uncertainty in terms of will Yahoo be able to get the full value of these assets," said Aaron Kessler, an analyst at ThinkEquity. But he noted that with Yahoo shares currently trading at around $16, the market isn't assuming much value for the Chinese assets to begin with, leaving room for upside. Daniel Morgan, a portfolio manager at Synovus Trust Co, said he was more interested in seeing a turnaround in Yahoo's core business than he was in gambling on a potential payoff from Yahoo's Asian assets, particularly in the wake of the Alipay situation. "There's got to be more to it than just speculation surrounding something that could happen," he said. Still, the allure of China, the world's largest Internet market by number of users, is hard to resist. Shares of Baidu Inc, China's No. 1 search engine, have surged 32 this year, while Chinese Web portals SINA Corp and Sohu.com Inc have risen 59 percent and 24 percent, respectively. While Western Internet companies like Google Inc have struggled to crack the Chinese market, notorious for its murky regulatory landscape, Yahoo's partnership with local player Alibaba was considered a shrewd way to tap into the fast-growing Chinese market -- particularly given that Yahoo acquired its sizable stake in Alibaba for the bargain price of $1 billion in 2005. Some investors believe privately-held Alibaba's value currently exceeds $40 billion. The fate of Taobao, an Alibaba subsidiary that is considered the eBay of China and deemed more valuable than Alipay, could be of even greater concern to Yahoo investors. Some investors, such as RCM Capital Management Portfolio Manager Walt Price, believe Taobao could be poised for an initial public offering in 2012, providing a boost to Yahoo's shares. Price doesn't see much risk of the Chinese government barring Yahoo from owning a stake in Taobao, as occurred with Alipay, noting that the e-commerce industry is of less concern to Chinese authorities than payment businesses. But he said Bartz and company need to make nice with Alibaba to clear the way for a Taobao IPO. "They just have to repair the relationship and compromise maybe a little bit on the ownership structure. If they do that, they're going to own one of the most valuable companies in China and Yahoo's stock is going to go higher." It's not the first time that Yahoo's fortunes have been closely intertwined with another Internet juggernaut. Yahoo shares reached $30 in 2008 amid negotiations about an acquisition by Microsoft Corp. Yahoo co-founder and then CEO Jerry Yang rebuffed a $47.5 billion offer by Microsoft, sending Yahoo shares on a downward slide from which they have never recovered. This time around, investors betting on the pioneering Web company expect Bartz to close the deal. (Reporting by Alexei Oreskovic; editing by Aaron Pressman and John Wallace) Technology Personal Finance Media China Smart Money Related Quotes and News Company Price Related News Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story directly or with relevant tangential information. We try to block comments that use offensive language, all capital letters or appear to be spam, and we review comments frequently to ensure they meet our standards. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. Comments (0) Be the first to comment on reuters.com. Add yours using the box above. Social Stream (What's this?) © Copyright 2011 Thomson Reuters Editorial Editions: Africa Arabic Argentina Brazil Canada China France Germany India Italy Japan Latin America Mexico Russia Spain United Kingdom United States Reuters Contact Us Advertise With Us Help Journalism Handbook Archive Site Index Video Index Reader Feedback Mobile Newsletters RSS Podcasts Widgets Your View Analyst Research Thomson Reuters Copyright Disclaimer Privacy Professional Products Professional Products Support Financial Products About Thomson Reuters Careers Online Products Acquisitions Monthly Buyouts Venture Capital Journal International Financing Review Project Finance International PEhub.com PE Week FindLaw Super Lawyers Attorney Rating Service Reuters on Facebook Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests. NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.

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