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Microsoft-Yahoo Linkup Hits The Pacific

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The Microsoft bid to buy Yahoo sent shock waves not only through Silicon Valley but also across the Pacific to China. With technology developments increasingly spanning out from the Valley to hotspots worldwide, including Beijing and Shanghai, that's no surprise.

What's been mostly overlooked in the news reporting so far about a possible Microsoft-Yahoo linkup is the impact it would have on a Chinese Internet company partly owned by Yahoo. We're talking, of course, about Alibaba.

It was Alibaba founder Jack Ma who convinced Jerry Yang on a Pebble Beach golf course to pay $1 billion for a 40% stake in his then privately held startup - and surprisingly, take over management of Yahoo China. The two Internet entrepreneurs have been closely linked ever since that landmark deal - the first time a Chinese company has run an American power brand in the Mainland.

What will happen to Alibaba with Microsoft as a suitor and potential owner is a cliffhanger. The independent-minded Ma is just getting used to answering to public shareholders since he listed his e-commerce startup on the Hong Kong Stock Exchange last November in a record-breaking IPO. But what if he has to answer to new bosses in Seattle? They may not have as much faith in his abilities as Yang does.

So far, Alibaba's remake of Yahoo China has been slow going, with management shifts, new strategies and a market share stuck at about 10%. Surely, Microsoft would want to leave its imprint. Ma's ambition is to put Yahoo China up against Google and Baidu search engines in China. This is an interesting twist to the tale - since Microsoft is pursuing Yahoo as a new weapon to do battle with Google.

But Microsoft may not have the opportunity for such leverage. One of the options Yang is toying with to ward off the takeover bid and appease shareholders is to unlock the value of its stake in Alibaba Group, a wide-ranging Internet player with e-commerce, auctions, business management software and payment systems. Shares of Alibaba were up 18% following the Microsoft bid for Yahoo.

The prospect of a tie-up between the two American tech titans even carried over to Japan. From Tokyo, Masayoshi Son, the leader of Internet and telecom powerhouse Softbank Corp., vowed he would not sell his firm's 40% stake in market leading Yahoo Japan. Son, by the way, is the same individual who backed Jack Ma's startup in its earliest days.

I can't think of another deal between two U.S. tech firms that has the potential for higher drama in Asia than this one. Perhaps the takeover of IBM's personal computer division by Chinese brand Lenovo in 2004 would count as one, but after that, the list trails off.

Certainly, how a Yahoo-Microsoft match-up will play out over the next few weeks will show how China and its own Internet brands increasingly play a global role in the tech world.