New Snag in Microsoft/Yahoo Deal: Chinese Law

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 |  Includes: MSFT, YHOO
by: Ron Haruni

Microsoft’s (NASDAQ:MSFT) hostile-takeover against Yahoo (NASDAQ:YHOO) is getting - yes, you guessed it - even more complicated by the hour.

International Herald Tribune reports that a Chinese antimonopoly law, taking effect August 1st ‘08 - will extend the nation’s economic influence far beyond its borders. It will make China a third sphere of regulatory influence matching the power of the European Union and the United States as another regulatory capital contending for influence with Brussels and Washington.

The measure, formally enacted by the National People’s Congress last year, allows Chinese regulators in using authority to examine foreign mergers when they involve acquisitions of Chinese companies or foreign businesses investing in Chinese companies’ operations.

In the case of Microsoft / Yahoo - the law gives China influence in Microsoft’s courtship of Yahoo because in August 2005, Yahoo invested $1 billion in Alibaba.com, China’s largest e-commerce business.

The investment gave Yahoo about a 40 percent stake in the Chinese company. Alibaba officials have said they believe that a Microsoft takeover of Yahoo would set in motion a buyback provision, making it possible for them to gain independence from Microsoft. (ooh, I can see Ballmer loosing it)

Execs of both companies - Microsoft and Yahoo - declined to comment on the possible effect of the new Chinese law.

In rejecting Microsoft’s takeover bid in January, Yahoo’s chief executive, Jerry Yang, said in a letter to employees that the offer substantially undervalued the company, in part because of the significant growth potential of the Alibaba business in China.

Even if the Chinese government did not try to prevent a takeover by Microsoft, a prolonged review could substantially damage the value of the business, a number of Internet industry executives said.