Yahoo Inc got short-changed -- that's the view of analysts picking apart the complex deal it announced on Friday with Alibaba Group and SoftBank Corp over Chinese e-payments unit Alipay.
The trio struck an agreement after months of wrangling over the lucrative asset, under which Alibaba gets up to $6 billion if the mobile payments firm goes public or gets sold.
But their solution bothered investors and reinforced perceptions on Wall Street that Yahoo has little control over Alibaba, the e-commerce company founded by Jack Ma and which is 43 percent-owned by Yahoo.
The conflict between the Chinese Internet firm and its two major shareholders started after Alibaba transferred Alipay to a separate company controlled by Ma. Yahoo has said that went on without its knowledge.
Now, under the agreement, Alibaba would receive $2 billion to $6 billion of the proceeds of an Alipay IPO or sale, based on 37.5 percent ownership of the mobile payments service.
That capped the potential amount that Alibaba -- and hence Yahoo or SoftBank -- could receive from the sale of a lucrative company of which it was once the sole owner. It may have represented a compromise over a matter in which Yahoo executives found they had little say.
"This deal just repairs a problem, but the value transfer that occurred gave Yahoo the short end of the stick," said BGC Financial analyst Colin Gillis.
"The key thing here is that they got the deal done," Gillis said. "But it doesn't fix the issue of how Yahoo can take this paper holding in Alibaba Group and turn it into cash on its balance sheet."
The agreement values Alipay between $5.3 billion and $16 billion, according to Jefferies Equity Research.
Shares of Yahoo initially jumped on the deal but reversed course to close about 3 percent lower at $13.10 on Friday, after analysts pressed Yahoo's finance chief on a conference call about its grip on its prized Asian assets.
The months-long fight put additional strain on an already troubled relationship between Alibaba and Yahoo after CEO Carol Bartz was brought in to try to rekindle growth at the once-dominant U.S. Internet player.
Yahoo's relationship with Alibaba is on the top of investors' minds because the U.S. company's Asian investments are deemed its most valuable asset. Stifel Nicolaus analyst Jordan Rohan said the deal "may have stirred up the emotions of an investor base that has taken a lot of body blows this year."
The lack of details on how Yahoo could access funds from any eventual Alipay IPO or sale, highlighted how Ma and his team called all the shots, and will keep doing so.
"Some fears remain that this could happen again," Rohan said. "The mechanism for Yahoo to extract value from those assets is as murky as it has ever been."
During the public spat between the companies, the hedge fund Greenlight Capital, which is run by investor David Einhorn, dumped its sizable position in Yahoo, and others followed suit.
It was telling that Bartz and Ma, the China-based CEO of Alibaba, were both absent from a conference call with analysts.
Apart from the Alibaba spat, Bartz is dealing with her own issues back home, with Yahoo trying to arrest a continued slide in revenue and reverse a stock decline of more than 21 percent in 2011 alone.
Under the agreement, Alipay will keep providing payment processing to Alibaba's e-commerce platform, Taobao, on "preferential terms."
Much of Alipay's value lies in the payment systems it provides to Taobao, Alibaba's most strategic asset. Alipay will also pay royalties and other fees to Alibaba -- prior to a liquidity event, according to the deal.
Investors had also been hoping for Taobao to go public, which would unlock more value for Yahoo. But Alibaba finance chief Joe Tsai all but ruled that out.
"You should take the Taobao liquidity event assumption off the table," Tsai told analysts on the call.
JP Morgan said the agreement over Alipay was "better than nothing, but not that great." Ultimately, Alibaba, which used to own all of Alipay, has effectively seen its stake reduced, which hurts Yahoo, the investment bank said.
In May, Yahoo claimed it had been blindsided by Alibaba's restructuring of Alipay, an online e-commerce payment akin to eBay Inc's (EBAY.O) PayPal. Ma took control of the company, which edged Yahoo out of the equation.
Ma had said the move was necessary to comply with Chinese law and to ensure Alipay could continue operating.
Alibaba countered that Yahoo was aware of the transaction by virtue of having a board seat, held by former Yahoo chief executive and director Jerry Yang.
Softbank, another large shareholder in Alibaba group, was also part of the agreement. SoftBank owns 42 percent of Yahoo Japan (4689.T), while Yahoo owns 35 percent of that company, another one of its most attractive assets.
Shares of Alibaba.com (1688.HK), the listed unit of Alibaba, dipped 0.1 percent in Hong Kong. SoftBank stock fell 3.5 percent on the Tokyo Stock Exchange.
(Additional reporting by Melanie Lee in Shanghai and Franklin Paul in New York; Editing by Edwin Chan, Dave Zimmerman and Matthew Lewis)