Yahoo to Buy Stake in Alibaba of China

SAN FRANCISCO —  Yahoo Inc. said late Wednesday that it would pay $1 billion in cash for a 40% stake in Alibaba.com, one of China’s biggest Internet companies, establishing China as the newest front in the war among online giants.

Yahoo said it would merge its Chinese operations with Alibaba, which offers a search engine, e-commerce site, online auctions and online payments. The new company would be led by Alibaba Chief Executive Jack Ma and would do business under the Yahoo name.

Analysts, commenting earlier on speculation about such a deal, called the move savvy. If approved by regulators in China, it would give Yahoo a stronger foothold in a country where the Internet is just beginning to take off.

“Without question, China is the fastest-growing Internet country in the world,” Yahoo Chief Executive Terry Semel said in an interview. “The opportunities are terrific. It’s very much in the early stages.”

Many of the online businesses that are well established in the U.S. are just getting started in China, prompting U.S. Internet leaders to both battle and seek alliances with local companies in the quest for Chinese Web surfers’ loyalty.

EBay Inc. has said it plans to invest $100 million to expand in China, where it is locked in a close battle with Alibaba’s auction site, Taobao.com.

Google Inc. was recently awarded a license to do business in China and announced plans to open a research and development center in the third quarter.

U.S. investors also have gone mad over China recently, sending Baidu.com’s stock soaring. Shares of the search engine more than quadrupled after its initial public offering last week before retreating in recent days.

“Given recent news around Baidu’s successful IPO and Google’s news on expansion in China, we see this as a positive move,” Lauren Rich Fine, a Merrill Lynch analyst, wrote in a research note written before Yahoo announced the deal.

Yahoo’s arrangement in China is similar to one that it struck to build its strength in Japan. But Semel noted that Yahoo is the second-largest shareholder in Yahoo Japan, behind Softbank Corp. In China, Yahoo will be the largest shareholder, with 40% of shares outstanding and 35% of the voting shares.