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Alibaba's accounting gets probed by SEC, so Yahoo shares swoon

As China's Internet giant rolls, so does its Silicon Valley investor.


Yahoo shares took a dive yesterday, due to the stock drop of Alibaba Group that impacted the Silicon Valley Internet giant's large stake in the Chinese e-commerce company.

Alibaba said earlier today that the Securities and Exchange Commission was investigating its accounting practices, specifically related to the web of companies in which it has investments. The SEC was also eyeing how Alibaba reports its operating data from Singles Day, the annual high-profile one-day sale event that garnered $14 billion in revenue in November.

The news of the probe caused Alibaba shares to plummet close to 7 percent, although that decline stopped in after-hours trading. Meanwhile, given Yahoo's 35 percent stake in the company, its shares dropped more than 5 percent before leveling off.

This kind of tandem stock behavior will continue until Yahoo separates itself from the Alibaba asset, as well as its also-lucrative stake in Yahoo Japan. Both of those investments make up most of the value of Yahoo, even though the company is currently in the process of selling its core business of search, media and advertising.

That's been deemed worthless by the market, even if it is not actually the case. A Yahoo sale is expected to fetch $4 billion to $6 billion, with potential buyers that include Verizon, Quicken Loans and also a number of private equity players like TPG. Those bids, now in a second round, are due June 4 and a sale — if it happens — is expected to be complete by July. Yahoo management has been meeting with bidders in long informational sessions in recent weeks.

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