Alibaba-Yahoo Is A Win-Win Deal

| About: Yahoo! Inc. (YHOO)

In the wake of Jack Ma’s announcement that he “is very interested” in Yahoo! Inc. (NASDAQ:YHOO), many critics pointed out that Alibaba’s (OTC:ALBCF) acquisition of the multi-billion dollar organization could face regulatory hurdles from the U.S. government because Yahoo’s crucial role in online communication would jeopardize the privacy of millions of U.S. internet users.

A fellow Seeking Alpha contributor, Mr. George Gutowski, pointed out out that such an acquisition would create Silicon Valley layoffs and disrupt Yahoo’s financial news portal. However, the allegations are magnified out of scope, and I believe that Alibaba’s acquisition of Yahoo could be a win-win situation for both China and the U.S.

Many critics compare Alibaba’s bid for Yahoo to Huawei’s bid for 3Com in 2008, and such a comparison is highly inaccurate. Huawei Technologies is the largest networking and telecommunication company in China and provides equipment for government, military, and civilian use. In addition, Huawei’s CEO, Ren Zhengfei, spent most of his career as a military technologist in the Chinese People’s Liberation Army until his retirement in 1982. Ren’s ties to the Chinese military, coupled with his company’s expertise in telecommunication and networking equipment could jeopardize the national security of the United States.

Alibaba is not Huawei. The company is a privately-owned, China-based company that specializes in C2C and B2C e-commerce, and operates the Yahoo! China web portal. It also operates Alipay, a third-party online payment platform which is similar to PayPal. Unlike Huawei’s Ren, Ma was never in the military. Ma graduated Hangzhou Teacher’s College with a degree in English and later developed an interest in website development. Alibaba was founded after Ma spent several years as the head of China International Electronic Commerce Center, a department under the Ministry of Foreign Trade and Economic Cooperation. The Ministry of Foreign Trade and Economic Cooperation has no ties to the military or the foreign intelligence agencies, because its main objective is to formulate policies on foreign trade, FDI, consumer protection, and market competition.

While I agree that information on millions of internet users in the U.S. would be under Alibaba’s control, I would also note that Alibaba is currently facilitating global e-commerce transactions for 69 million users from 240 countries. Alibaba has a positive record of respecting the privacy of its user base and I believe that it would do the same to the Yahoo users, should the company acquire Yahoo. Unlike Gutowski, who believes that Alibaba’s acquisition of Yahoo would exacerbate the current 9% unemployment rate in the U.S., I believe that Alibaba would not only retain but also increase Yahoo’s current headcounts.

The acquisition of Yahoo will instantly give Alibaba a foothold in the U.S. online advertising and e-commerce market. To capitalize on the opportunity, Alibaba is likely to retain Yahoo’s current headcounts because U.S. engineers are more innovative, creative, and experienced than their Chinese counterparts. The Chinese engineers that Alibaba have are educated on a system that emphasizes memorization and theory while the U.S. engineers can contribute to the innovation and creativity to Yahoo based on their professional and academic experience. The U.S. education system encourages innovative thinking among its students, as provided by universities such as Stanford and Caltech. Yahoo’s location within the heart of Silicon Valley allows Alibaba to recruit talents in the region as it expands its online advertising and e-commerce footprints in the U.S.

Finally, a better analogy of the Alibaba-Yahoo bid would be the Lenovo (OTCPK:LNVGF)-IBM (NYSE:IBM) PC bid, in which a Chinese cross-border investment of a U.S. firm not only saved an ailing U.S. brand (The Thinkpad) but also thousands of U.S. jobs. Alibaba’s acquisition of Yahoo could potentially revive an ailing company that is losing its edge in both online advertising and e-commerce, and create much needed jobs amidst an environment of high unemployment. The success of this cross-border transaction will likely encourage more foreign direct investments from China, which in turn could spur additional job creation. In the end, the Chinese will have the opportunity to build their operations on a global platform, while the U.S. gets much needed FDI- which are better than buying Treasury bonds.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.