Jason Lee/Reuters Jack Ma, Alibaba’s chief executive, could hold up a sale of Yahoo.

As Yahoo explores its future, one of the board’s top considerations is what to do about the company’s 43 percent stake in Alibaba, the Chinese Internet giant.

The stake, Yahoo’s crown jewel asset, is worth billions of dollars and provides the company a foothold into China. The problem is that Yahoo has an agreement that gives Alibaba’s shareholders the option to repurchase the stake through a right of first refusal. Alibaba’s chief executive, Jack Ma, desperately wants to acquire Yahoo’s shares and will no doubt try to exercise this right.

That means Yahoo’s options are even more limited than people think.

A right of first refusal is a mechanism that parties agree to in order to control who owns the shares in their company. If one group wants to sell its stake, the other shareholders can then exercise their right of first refusal and purchase that stake.

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Rights of first refusal can be quite valuable. They not only ensure that shareholders can control who owns the company, but they can also be a thorn in the side of a shareholder who wishes to sell. The reason is that third parties will refuse to bid for the shares knowing that any bid might be wasted because the other shareholders will exercise the right of first refusal.

In Alibaba’s case, it’s a likely scenario. If that happens, suitors will need to pay a high price to ensure Alibaba’s shareholders do not bid — or suitors may not make a bid. As such, Yahoo could be in a position where the only possible buyer is Alibaba. Alibaba shareholders know this too, and they could use it to their advantage by making a low-ball bid.

The right of first refusal clearly applies to any effort by Yahoo to sell its Alibaba shares. However, a close reading of the stockholders agreement shows that the right of first refusal may also be triggered if there is a sale of Yahoo itself. If Yahoo is sold, a bidder for the entire company may not be able to count on receiving one of Yahoo’s major assets. In addition, even if the bidder was willing to sell the Alibaba shares, the price mechanism here may mean that the bidder would receive less for these shares than it otherwise might.

The language in the stockholders agreement states that if Yahoo wants to “transfer” any shares, it is subject to the right of first refusal. The issue comes about because “transfer” in the agreement is defined as “any sale, transfer, assignment, gift, disposition of, creation of any encumbrance over or other transfer, whether directly or indirectly, of the legal or beneficial ownership or economic benefits of all or a portion of the equity securities.” Alibaba will claim that the sale of Yahoo itself is an indirect transfer of the Alibaba shares, triggering the right of first refusal.

The argument is not a certain winner. First, the parties could have specifically stated this in the agreement, but they did not. This is yet another example of lawyers drafting vague language possibly by mistake.

Second, the mechanics of the right of first refusal require that the original shareholder first get an offer from a third party. This establishes a price that the other Alibaba shareholders can pay if they exercise the right of first refusal.

In a full sale of Yahoo, there is no price set for the Alibaba shares, only for all of Yahoo itself. Yahoo could also argue that “indirect” in this case refers only to the actual shares and is inserted to cover futures and other derivatives.

Alibaba could counter that the language about indirect transfers was meant to include an entire sale. This argument is buttressed by the fact that the clause talks about transferring the economic benefits of ownership, which is what would happen in a full Yahoo sale.

In addition, it appears the agreement was drafted to ensure that Alibaba shareholders retained control of the corporate ownership. Finally, to determine the price of the Alibaba shares, you can simply do a valuation analysis that attributes part of the full sale price to the stake.

But Alibaba may not need to win this argument. The stockholders agreement requires that if there is any dispute, it is subject to confidential arbitration in Singapore before three arbitrators. This process could not only send teams of lawyers to Singapore as proceedings drag on for perhaps years, the outcome would be uncertain.

And remember that the Chinese regulatory authorities can likely block any transfer. Mr. Ma may no doubt have some influence there, too. Finally, any purchase of Yahoo or its Alibaba stake will want to be in the good graces of Mr. Ma, something that he is unlikely to bestow if he loses out on purchasing this stake.

Alibaba can thus simply invoke the right of first refusal and hold up any full sale of Yahoo or force a third party to deal with Alibaba. While a bidder could proceed and decide to litigate the matter, this may make financing for the acquisition much more difficult. It also may not be a risk that an acquirer is willing to bear or will factor in the price it is willing to pay for Yahoo.

The right of first refusal is likely yet another reason why Yahoo is reportedly focused on selling only a minority interest in itself rather than a full sale or a sale of the Alibaba stake. A sale of the Alibaba stake may not yield the best price, while a sale of Yahoo itself has murky consequences.

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