Yahoo signed a deal to buy 40 percent of for one billion dollars cash while handing over the running of its China operations to the Chinese online retailer. and Yahoo! announced today in Beijing that Yahoo! will integrate its Chinese business into and gain a 40 per cent stake in the ecommerce company. In return Alibaba will receive a $1bn investment from Yahoo!.

In a letter to Yahoo! employees, company director Jerry Yang said the deal will be finished before the fourth quarter of 2005.

Jack Ma, founder and CEO of Alibaba, said the aim of the partnership is to bolster Alibaba’s ecommerce and search businesses. After the deal, will consist of, Alipay, and Yahoo! China. The business will offer instant messaging, ecommerce, online auctions, search services and a portal.

Ma added that Alibaba is making profits in business-to-business ecommerce but is not eager to go public. Alibaba’s goal is to go beyond eBay and Google.

The combined entity will have a four-person board. Management of will hold two seats, for Ma and the company CFO. The other directors will be Yahoo!’s Yang and Sun Zheng yi, a representative from Softbank.

Gao Fei writes for ZDNet China

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