China's Alibaba Group may rethink Yahoo ties

SHANGHAI (Reuters) - China’s Alibaba Group said on Thursday it may re-evaluate its relationship with its largest stakeholder, Yahoo Inc, after a Yahoo Hong Kong executive was quoted as saying the firm may compete in the mainland online advertising market.

Alibaba Group, which is 40 percent owned by the U.S. giant, owns China’s largest business-to-business e-commerce website Ltd and its largest consumer e-commerce website, Taobao.

Yahoo has no direct presence in China and prefers to be represented on the mainland by Alibaba Group.

But Yahoo does conduct its own direct business in Hong Kong through its Hong Kong subsidiary, Yahoo Hong Kong.

Yahoo Hong Kong’s Managing Director Alfred Tsoi Po-tak was quoted by the South China Morning Post on Monday as saying the company was thinking of luring online advertisers from the mainland to the site.

Tsoi said Yahoo HK would like to attract small and medium enterprises from the mainland keen to advertise online. also considers small and medium enterprises as its main customers.

Such a move could put Yahoo Hong Kong, the territory’s leading portal, in direct competition with Alibaba Group’s subsidiaries, such as

“If Yahoo begins to compete with Alibaba for customers in China, we will have to re-evaluate our relationship with Yahoo further in light of this activity and the intentions it implies,” said Alibaba Group’s spokesman John Spelich.

This statement is the latest in a series of clashes between the two companies. Earlier this year, Alibaba called Yahoo reckless for the latter’s comments it would stand by Google after Google threatened to pull out of China.

Yahoo also sold its stake in late last year, surprising Alibaba executives near their 10-year anniversary.

Yahoo said in an email statement that the company is always looking for revenue growth opportunities.

“China-based companies buying ads on the Yahoo Hong Kong network does not affect the investment (in Alibaba),” Yahoo said.

Yahoo folded its search business and invested $1 billion in Alibaba Group in 2005 in exchange for the 40 percent stake. It is believed that Alibaba wants Yahoo to sell its stake in the group, but Yahoo has said publicly it views its now multi-billion dollar stake in Alibaba as a key investment in China.

Reporting by Doug Young and Melanie Lee with additional reporting by Alexei Oreskovic in San Francisco; Editing by Jacqueline Wong