WSJ : AT&T Has Approached DirecTV About Possible Acquisition

AT&T has approached DirecTV about a possible acquisition of the satellite-TV firm, say people familiar with the situation, the latest sign of a possible shake-up in the television industry.

A combination of AT&T with satellite-TV firm DirecTV would create a pay television giant close in size to where Comcast Corp. will be if it completes its pending acquisition of Time Warner Cable. TWC +0.09%

DirecTV is the second biggest pay TV operator, serving about 20 million customers, while AT&T's landline-based TV business serves about 5.7 million. The nearly 26 million subscribers served by the combined company would compare with Comcast which—with TWC—would serve close to 30 million subscribers.

A deal would likely be worth at least $40 billion, DirecTV's current market capitalization, a fraction of AT&T's $185 billion market capitalization.

AT&T declined to comment. DirecTV declined to comment

The approach has come since Comcast struck its Time Warner Cable deal in February, one of the people said. It is unclear whether the companies are in detailed talks, but another person familiar with the situation said that DirecTV would be open to a deal. The satellite TV industry is facing a slowdown in subscriber growth after years of adding customers. The pay television market in the U.S. is now mature, with about 90% of U.S. households with TV now subscribing to either cable, satellite or phone company-delivered television.

And satellite firms' inability to offer Internet access that is competitive with cable and phone companies is becoming a bigger issue.

Since 2010, DirecTV's rate of subscriber growth in the U.S. has fallen every year, compared with the prior year. Last year, DirecTV lost subscribers in a quarter for the second time ever, in a deeper loss from the year-ago quarter when it saw its first such loss, according to MoffettNathanson LLC data.

Acquisition of DirecTV would give AT&T a national footprint in pay television at a time when the telecom company sees video delivery as core to its future. An acquisition would allow AT&T to offer bundles of wireless and TV services, and could give AT&T new ways to deliver video to its mobile and broadband customers.

AT&T's interest in owning a satellite television provider has been speculated about for years. The telecom carrier has held talks with both Dish Network Corp. and DirecTV in recent years, according to people close to the situation.

AT&T already has a partnership with DirecTV to sell its service in areas where it offers broadband but doesn't offer its U-verse television service.

AT&T, which has grown rapidly from a regional telecommunications firm into one of the U.S. industry's two largest companies via an aggressive merger strategy, had been expected to make its next move into Europe. But Chief Executive Randall Stephenson said at an investor conference earlier this year that Comcast's proposed purchase of Time Warner Cable has shifted his priorities, leading him to refocus on the U.S.

"It's an industry redefining deal from our standpoint," Mr. Stephenson said.

Whether regulators would agree to a DirecTV-AT&T merger is a major question. Comcast's Time Warner Cable deal faces tough regulatory scrutiny and a second pay-TV merger would likely intensify regulatory and political questions surrounding consolidation in the industry.

Any acquisition would likely be evaluated by the Justice Department for its impact on competition and would require approval by the Federal Communications Commission. The companies would have to prove to the FCC that the transaction would be in the public interest and the combined company would be able to offer consumer benefits not possible outside the merger. However, a person familiar with the FCC's thinking predicted the merger would have a solid chance at approval because offering video or voice service alone is viewed as a dying business and the combined company would be in a position to compete with Comcast, the leading cable and broadband provider.

Competition in the broadband market is likely to be the central issue in any review. Observers say the deal would be more likely to gain approval if the combined company can show it would provide competition for Comcast and other cable companies in the high-speed broadband market. A source familiar with antitrust reviews said regulators would likely be concerned about the impact on markets where AT&T already offers high-speed broadband access and pay-TV via its U-Verse project. AT&T may be required to divest DirecTV subscribers in such markets.

Observers also noted that the deal would increase the pressure on Dish Network to enter into a merger with a wired or wireless broadband provider.

Despite DirecTV's recent slowdowns, satellite investors point out that it has continued to outperform its cable rivals. And part of the drop-off in subscriber growth is due to the company's strategic focus on adding only higher-value customers who are less likely to chase discounts and switch providers. One investor called the company's results "outstanding" both "operationally and in terms of share appreciation" thanks to big stock buybacks. But the investor noted that built into the value of DirecTV's shares is some anticipation of the company being acquired in the future.

DirecTV and satellite rival Dish attempted a merger more than a decade ago which was blocked by regulators. Dish has lately approached DirecTV about trying again, say people familiar with the situation, although that approach hasn't led to any serious discussions. While executives from both companies have publicly signaled their continuing interest in the idea, they have also noted that the two companies have taken different strategic routes, and regulatory attitudes to a merger remain unclear

Dish declined to comment.

>>> Woodside Petroleum expresses doubt over possible Leviathan returns

Woodside Petroleum expresses doubt over possible Leviathan returns

Woodside, the ASX-listed oil and gas business, has expressed doubt over the potential returns available from Israel’s Leviathan gas project, the Australian Financial Review reported.

The report cited Woodside’s chief executive, Peter Coleman, as saying that changes to the project’s development plan to favour exports by pipeline over floating LNG may have reduced the investment’s attraction for Woodside. Coleman noted that the increased pipeline component has reduced the upside for Woodside.

The item noted that Coleman’s comments indicate that Woodside’s involvement in the project is increasingly uncertain.

The report said that Noble Energy said last week that it would not wait for Woodside to buy into the project before proceeding with development. Noble and its partners are working on several deals to sell gas from the project to neighboring countries through pipelines. Coleman noted that when the deal was first mentioned in December 2012 the plan was for a floating LNG plant that would export gas by tanker to Asian markets.

Coleman noted that it was a hard decision not to enter an agreement with Noble on the 27 March target date, but the company had to ensure the deal offered adequate returns.

Woodside is seeking to acquire 25% of the Leviathan field, the report said. Coleman noted that talks are still ongoing.


Source Australian Financial Review

>>> What to look at today - 01/05/2014 - Labor Day - Most markets Closed

US Market closed higher with Fed Taper again, the Dow registering a new record closing high at 16,580.84, which represented its first green close for the year...Yesterday's session featured another heavy dose of earnings and a full slate of economic data. Prior to the open, index futures jumped in reaction to a better-than-expected ADP Employment report, but promptly surrendered those gains when it was reported that GDP increased a puny 0.1% in the first quarter (consensus 1.0%). FED Commenrts about Economy & the decision to cut anothe 10b froms its monthly purchase helped mkt to recover (wording : growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions)...boosted by end of month volume were above average @ 892mil...VIX @13,41 -2,19%...  The start of Labor Day holiday weekend across much of the far east has kept market volatility to a minimum. China govt put out its official manufacturing PMI just shy of the consensus estimate. Despite the miss, the headline figure marked a 3-month high and a 2nd consecutive month of improvement...USD/JPY pair traded in a 20pip range around ¥102.20, despite another nudge by Japan PM Abe's influentiel economic adviser Hamada toward more easing if the impact of higher sales tax becomes more pronounced....Nikkei +1,11%...Hang Seng closed...Shanghai closed

Eur$ 1,3882 S&P Fut Flat European Fut closed FtseFut +0,10%

Macro 
- Fed Reduces QE to $45b/mo., Keeps Low-Rate Pledge Same
- China April Manufacturing PMI 50.4; Est. 50.5

Keep an eye on :
- AZN LN : Pfizer CEO Meets With Large AstraZeneca Holders, Osborne: FT
- BG/ LN : BG 1Q Net $1.15b vs Est. $1.05b; Says Egypt to Affect 2015 LNG
- BN FP : Danone Agrees to Buy New Zealand Dairy Processors, Fairfax Says
- DANSKE DC : Danske Bank 1Q Net Beats Est.; Outlook at Higher End of Range
- DTE GY : Sprint Said to Plan T-Mobile Bid After Pushing Banks for Funding
- ELE FP : Euler Hermes 1Q Net EU82.7m vs Est. EU78.2m
- FER SM : Ferrovial 1Q Net EU65 Million Vs EU72 Million a Year Earlier
- GSK LN : Glaxo Wins FDA Approval for Incruse Ellipta to Treat COPD
- IDR SM : Indra 1Q Net EU31m Vs EU27m a Year Earlier
- ING FP : Ingenico 1Q Sales Beat; 2014 Forecast Affirmed
- LLOY LN : Lloyds 1Q Underlying Profit Rises 22%, Sees FY NIM at 2.4%
- MEDAA SS : Mylan’s Third Bid for Meda May Seal the Deal, Cowen Says
- NOVOB DC : Novo Nordisk 1Q Net Beats Est.; Lowers FY14 Rev. Outlook
- PUB FP : Publicis, Omnicom Seeing Loss of Clients, Staff: Reuters Link(Vodafone & Microsoft (Interpublic)
- RB/ LN : Not anymore indiscussions with Merck
- REP SM : Repsol Names Imaz CEO to Start ‘New’ Phase in Management
- RR/ LN : Rolls-Royce Sees Weaker Marine; Group Rev, Profit Flat for Year
- SCVB SS : Investor AB to Tender Scania Shrs in Volkswagen Bid
- SN/ LN : Smith & Nephew 1Q Profit, Adj. EPS Miss Ests.; Keeps Outlook
- SRP LN : Serco Plans to Sell Up to 49.9m Shrs, 9.99% Stake
- TFI FP : TF1 1Q Net EU14.6m vs Loss EU6.3m; Reiterates Savings Target
- TIT IM : Shire Rises on Report Allergan Is Preparing Takeover Offer
- WEIR LN : Weir Group Full Year Guidance Unchanged; 1Q Op. Margins In Line

>>> Brokers Upgrades & Downgrades

>>> Up
*AGGREKO RAISED TO BUY VS HOLD AT JEFFERIES
*BARCLAYS RAISED TO BUY VS NEUTRAL AT UBS
*BUNZL RAISED TO HOLD VS UNDERPERFORM AT JEFFERIES
*BUREAU VERITAS RAISED TO BUY VS UNDERPERFORM AT JEFFERIES
*EXPERIAN RAISED TO BUY VS HOLD AT JEFFERIES
*INTERTEK RAISED TO BUY VS UNDERPERFORM AT JEFFERIES
*PADDY POWER UPGRADED TO NEUTRAL FROM UNDERPERFORM AT DAVY
*SERCO RAISED TO HOLD VS SELL AT LIBERUM
*SGS RAISED TO BUY VS HOLD AT JEFFERIES
*TELIASONERA RAISED TO BUY VS NEUTRAL AT GOLDMAN

>>> Down
*DEVRO CUT TO NEUTRAL VS BUY AT GOLDMAN
*HAYS CUT TO HOLD AT JEFFERIES
*HERITAGE OIL CUT TO NEUTRAL VS BUY AT UBS
*KAZAKHMYS CUT TO UNDERPERFORM AT MACQUARIE
*MICHAEL PAGE CUT TO HOLD VS BUY AT JEFFERIES
*RANDSTAD CUT TO HOLD VS BUY AT JEFFERIES
*STHREE CUT TO HOLD VS BUY AT JEFFERIES

>>> PT Changes
*Jeronimo Martins PT Cut to EU16 vs EU16.3 at Raymond James
*SORIN PT RAISED TO EU2.65 VS EU2.5 AT BERENBERG; KEPT AT BUY

>>> Initiation
*CINEWORLD RESUMED OVERWEIGHT AT JPMORGAN, NEW PT 400P
*CONYGAR INVESTMENT RATED NEW BUY AT LIBERUM, PT 204P
*FLYBE RATED NEW HOLD AT CANTOR; PT 160P
*GULF MARINE SERVICES RATED NEW NEUTRAL AT JPMORGAN; PT 165P

>>> Call
>> Stock
*BARCLAYS ADDED TO MOST PREFERRED BANKS AT UBS
*DEUTSCHE BANK ADDED TO LEAST PREFERRED BANKS AT UBS

RTR - publicis Omnicom

Rivals poach Publicis, Omnicom clients, staff as merger faces snags

LONDON/NEW YORK/PARIS (Reuters) - Publicis and Omnicom have lost more than $1.5 billion of client work in recent weeks and face a fight to retain billions more, including a huge Samsung contract, just as the two advertising firms struggle to keep their merger on track.

When the world's second and third-largest ad groups announced a merger last July, it sparked talk from rivals, led by Martin Sorrell, the boss of current leader London-based WPP, that the U.S. and French firms could lose clients and talented staff as a result.

Now, with the deal's closing delayed at least six months because of regulatory issues, and relations so tense between the two that they haven't been able to solve a seven-month dispute over who becomes new finance chief, Sorrell has been boasting about being successful in winning business from them and poaching their staff.

Several large contracts, including Vodafone's $1 billion global media and buying account, moved hands from Omnicom to WPP in April.

On Wednesday, Microsoft announced it was moving its multibillion-dollar ad and media business from Publicis and WPP to Japan's Dentsu Aegis and U.S. Interpublic. Others to move away from Publicis or Omnicom in recent weeks include food maker Danone, pharma group GSK, electronics firm Sony, and retailer Marks & Spencer.

In the ad business, accounts do change hands quite regularly - in the case of some companies every few years - and there are often reviews and pitches for the business when contracts come to the end of their terms. Also, none of the clients who have jumped ship have publicly blamed the merger.

Omnicom CFO Randall Weisenburger noted on an earnings call last week that swings in the business, such as the Vodafone loss, are quite normal. "Each quarter you get one or two big wins or one or two big losses," he said.

And the wins are not all in WPP's favor. Publicis prevailed against WPP on a contract with food company ConAgra in February and its BBH agency expanded its role with British Airways at the expense of WPP's Ogilvy in March.

Nevertheless Publicis and Omnicom face the unenviable task of defending contracts, including the multibillion dollar account of tech giant Samsung and the U.S. account of the leading brewer Anheuser-Busch InBev, maker of Budweiser beer, amid questions about whether the merger plan will fall apart.

Among any client's biggest concerns will be whether they get the attention and quality of service they want from staff and management who will be wondering if the merger will happen and what lies ahead for them whether it goes ahead or not. Critical is whether there will be changes in the ad agency teams they work with, consultants, analysts, and rival ad executives said.

"There is more than $4 billion in review for the combined company counting major accounts like Samsung that could change hands," Pivotal Research analyst Brian Wieser said.

"Publicis and Omnicom lost contracts worth $1.5 billion from four accounts in one week in April," he said. "It's somewhat bad luck on timing, but does raise some questions as to if it's more than bad luck."

CHAMPAGNE TOASTS

As they feted the deal signing with champagne in Paris last summer, Omnicom CEO 's John Wren and Publicis' CEO Maurice Levy said their "merger of equals" would enable them to better compete with the likes of Google and Facebook who dominate the digital ad space, which accounts for nearly a quarter of global marketing spend.

Greater scale was supposed to give the new group better bargaining power in buying space for ads on TV, the web, and print at a time when many global brands are looking to cut costs on advertising.

But uncertainty over the deal grew last week after the two CEOs gave different reasons for the closing's delay.

The deal still requires various regulatory approvals, including antitrust approval in China, and agreement from European authorities to a structure that would see the merged company have its domicile in the Netherlands and tax residency in the UK.

The two sides are also locked in a dispute over who should be chief financial officer. Whoever takes the CFO role will determine how the new company will operate, hewing either to Publicis' centralized structure or Omnicom's less controlling approach to subsidiaries.

Still, some experts said that the merger of the two holding companies wasn't a big issue for many clients.

Judy Neer, president and CEO of Pile and Company, a consulting firm that helps companies with their marketing relationships, said many of her clients weren't concerned about the merger provided it didn't impact the specific ad agency subsidiaries they deal with.

One insider at Omnicom acknowledged that the deal had not been useful as a tool to recruit clients, but nor were clients citing it as a reason for reviewing contracts either.

A person familiar with the thinking of one big consumer brand which recently moved its global account from Publicis to WPP said it had not been put off by the merger, but that WPP had offered more attractive and efficient terms.

Another person at a multinational which recently moved its media buying account from Omnicom to WPP, said Omnicom had in recent months failed to maintain the relationship, that WPP was better in certain areas including digital, and that the company couldn't see the benefits to the Omnicom-Publicis merger.

"No one explained what synergies were in it for us," the person said.

POACHING TALENT

One of the biggest accounts to come up for grabs in recent years is the creative, digital and media business of Samsung Electronics. Starcom MediaVest Group and Leo Burnett, units of Publicis, currently have much of the work with other agencies doing parts.

According to Ad Age, Samsung spent $4.35 billion on advertising in 2012. Exane BNP analyst Charles Bedouelle said the account could be worth around 2 percent of Publicis revenues and said the review indicates how big companies are consolidating their work across countries and sectors as they look to save on costs. "WPP excels at this game," he said citing the firm's size and structure.

Other battlegrounds expected include Spain's Telefonica, which is reviewing some $300 million in advertising contracts, most of which are now with Publicis.

WPP had the highest rate of comparable revenue growth of the big four agencies in the first quarter, with the fourth-largest IPG in second place, Omnicom third and Publicis fourth.

Retaining talent is also a worry for Publicis and Omnicom.

WPP's Sorrell has said that for every one member of staff he has lost to the merging group, his firm has attracted four in return. Both IPG boss Michael Roth and Yannick Bollore, head of the fifth-biggest ad group Havas, said they had seen opportunities to lure staff away from the two. Havas recently won an account from Gulf airline Emirates from Publicis.

"Six months ago or four months ago, I was receiving resumes from young executives," Bollore told an analyst conference call on March 20. "Now for the last two or three weeks, I don't know if something happened inside Publicis-Omnicom, but I'm starting to receive some resumes from very high senior managers."

Still Omnicom's Wren said on the firm's earnings call last week that its talent base is "very stable" and pointed to a recent big hire: Peter Sherman, Omnicom's new executive vice president, who left WPP'S JWT Worldwide.

>>> Asia Update

Asian Market Update: China PMI rises for the 2nd month; Australia manufacturing remains in contraction


***Economic Data***
- (CN) CHINA APR MANUFACTURING PMI: 50.4 V 50.5E (3-month high; 2nd consecutive rise)
- (AU) AUSTRALIA APR AIG PERFORMANCE OF MANUFACTURING INDEX: 44.8 (9-month low; 6th month in contraction) V 47.9 PRIOR
- (AU) AUSTRALIA Q1 IMPORT PRICE INDEX Q/Q: 3.2% V 1.8%E; EXPORT PRICE INDEX Q/Q: 3.6% V 1.5%E
- (AU) AUSTRALIA APR RPDATA/RISMARK HOUSE PRICE INDEX: 0.3% V 2.3% PRIOR
- (KR) SOUTH KOREA APR CPI M/M: 0.1% V 0.1%E; Y/Y: 1.5% V 1.5%E (18th month below 2.5-3.5% target band); CORE CPI Y/Y: 2.3% V 2.1% PRIOR
- (KR) SOUTH KOREA APR TRADE BALANCE: $4.5B V $4.3BE

Market Snapshot (as of 03:30 GMT):
- Nikkei225 +0.7%, S&P/ASX -0.8%, Kospi closed, Shanghai Composite closed, Hang Seng closed, Jun S&P500 flat at 1,878, Jun gold -0.5% at $1,289, Jun crude oil -0.1% at $99.67/brl

***Highlights/Observations/Insights***
- The start of Labor Day holiday weekend across much of the far east has kept market volatility to a minimum. China govt put out its official manufacturing PMI just shy of the consensus estimate. Despite the miss, the headline figure marked a 3-month high and a 2nd consecutive month of improvement, even as the most closely tracked subindex of New Export Orders (gauge of external demand) fell into a contraction. Employment component remained unchanged at 48.3, while backlog and inventories recovered slightly. Earlier, China Premier Li warned the govt may need to take more measures just to meet the official target for trade growth in 2014, even though the govt has previously denied speculation it would announce significant fiscal steps. Shanghai Composite index is closed until Monday.

- In Australia, AiG Manufacturing PMI remained in contraction for the 6th consecutive month, and the April decline only deepened further. AiG said "conditions remain extremely difficult in the manufacturing export markets", even though inventories subindex nearly returned to stabilisation. Employment subindex - the most telling of the AiG components - contracted at a faster pace. AUD/USD was little moved by either the China PMI or the AiG manufacturing index, unable to sustain its upward momentum after a brief breach of the $0.93 handle.

- ANZ Bank shares fell nearly 2% after posting H1 results despite a 15% rise in net profit. Net interest margins shrunk by 9bps to 2.15% and common tier 1 ratio fell 15bps to 8.33% from H2 levels, while ROE was flat on the year. On a conference call, CEO Smith said he expects a 10% decline in loss provision for the FY as non-performing loans trend continues to improve, and also forecasted capital ratio to recover to 8.5-9.0% range.

- USD/JPY pair traded in a 20pip range around ¥102.20, despite another nudge by Japan PM Abe's influentiel economic adviser Hamada toward more easing if the impact of higher sales tax becomes more pronounced. Upbeat policy statement by the Fed and another $10B in monthly taper did little to fix the overnight damage by the BOJ and its Gov Kuroda, whose neutral remarks continued to detract from market expectations of more easing this summer.

***Fixed Income/Commodities/Currencies***
- GLD: SPDR Gold Trust ETF daily holdings fall 4.2 tonnes to 787.9 tonnes (lowest since Jan 2009)

***Equities***
US markets:
- WTW: Reports Q1 $0.31 (adj) v $0.09e, R$409.4M v $399Me; +11.9% afterhours
- TMUS: Strength attributed to reports of another impending approach by Sprint; Held meetings with banks regarding potential loan package - financial press; +9.3% afterhours
- FLTX: Reports Q1 $0.19 v $0.16e, R$51.9M v $52.3Me; +3.6% afterhours
- FLEX: Reports Q4 $0.24 adj v $0.21e, R$6.72B v $6.09Be; +3.5% afterhours
- ARO: Reaffirms Q1 -$0.75 to -$0.70 v -$0.72e; will cut 100 jobs and will exit mall based locations; +3.4% afterhours
- WDC: Reports Q3 $1.94 v $1.88e, R$3.70B v $3.73Be; Guides Q4 $1.65-1.75 v $1.90e, R$3.5-3.6B v $3.7Be - conf call comments; -1.6% afterhours
- MET: Reports Q1 $1.37 v $1.40e, R$17.1B v $17.5Be; -2.5% afterhours
- TEX: Reports Q1 $0.28 v $0.34e, R$1.65B v $1.70Be; reiterates FY14 guidance; -3.0% afterhours
- BYD: Reports Q1 -$0.04(adj) v $0.00e, R$708M v $718Me; -3.5% afterhours
- JDSU: Reports Q3 $0.10 v $0.11e, R$418M v $432Me; -6.0% afterhours
- ARAY: Signs Three-Year Contract with Novation; Gains Access to Over 2,500 Member Hospitals for the CyberKnife M6 and TomoTherapy H Series; -6.6% afterhours

Notable movers by sector:
- Consumer Discretionary: Japan Airlines Corp 9201.JP -1.5% (FY13/14 results); Start Today 3092.JP +16.0% (FY13/14 results)
- Consumer staples: Yamazaki Baking 2212.JP -6.3% (Q1 results)
- Financials: ANZ Bank ANZ.AU -1.6% (H1 results); Nomura Holdings 8604.JP +6.5% (FY13/14 results; repurchase plan)
- Technology: Seiko Epson Corp 6724.JP +15.9% (FY13/14 results)

WSJ : Alibaba in Talks to Reclaim Stake in Alipay Payments U

Alibaba in Talks to Reclaim Stake in Alipay Payments Unit

As IPO Nears, E-Commerce Giant in Talks With Spinoff About Reacquiring a Stake

Chinese e-commerce giant Alibaba Group Holding Ltd. is in discussions with its major shareholders to reclaim a formal stake in its strategically important online-payment affiliate, said people familiar with the matter.

A stake in the affiliate, called Alipay, could significantly raise the future value of Alibaba, now preparing an initial public offering already expected to be one of the largest in U.S. history. However, even if an agreement over Alipay is reached, it isn't expected to take effect before the IPO, the people said, and would face regulatory review in China.

Alipay is central to Alibaba's operations, processing its e-commerce payments similar to the way PayPal handles transactions for eBay Inc. EBAY -4.97% It has also jumped into financial services, and now controls China's largest money-market fund, with assets of $87 billion.

The Alibaba-Alipay relationship has been controversial, and demonstrates an often interconnected web of Chinese corporate ownership.

Alibaba founder Jack Ma separated Alipay from the group in 2011, saying the spinoff was necessary for Alipay to obtain a license to continue its business under then-new Chinese government regulations.

The move prompted large Alibaba investor Yahoo Inc. YHOO +0.33% to complain it wasn't made aware of the transfer of Alipay until after it was enacted. Some investors were angry that the shift devalued their holdings.

Alibaba said at the time that its board, on which Yahoo co-founder Jerry Yang held a seat, had previously discussed the possibility of such a spinoff. The two firms, and another major investor SoftBank Corp., later reached an agreement over terms of the separation.

Today, Alipay is controlled by a parent company in which Mr. Ma holds a 46% stake. Other Alibaba co-founders also hold stakes in Alipay's parent company. That parent company also owns the unit that operates Alipay's money-market fund, Yu'E Bao.

SoftBank, a Japanese Internet and mobile service company, has an about 37% stake in Alibaba Group. Yahoo, its second-largest shareholder, owns 24% and Mr. Ma owns roughly 7%.

Following the 2011 spinoff, Alipay and Alibaba agreed that Alibaba would be paid between $2 billion and $6 billion if Alipay were to go public. Their agreement also sought to ensure that Alipay didn't try to overcharge Alibaba for its payment services. The direct ownership structure under discussion would replace that framework agreement.

One scenario being discussed with a major shareholder would have Alibaba taking a one-third stake in Alipay, said one of the people familiar with the talks.

Changing the ownership structure is "still only a concept at this point, and there is no timeline," another person familiar with the discussions said.

The Alipay ownership discussions come as Alibaba is gearing up for an IPO late this summer that could raise more than $20 billion. With such a huge supply of shares potentially coming to market, the company must drum up significant interest among investors if it wants to sell those shares at a high price.

The possibility of direct ownership in Alipay could add to investor excitement, enabling Alibaba's future shareholders to benefit from Alipay's growth, especially in its payment services for non-Alibaba clients and in its financial services. Alipay doesn't disclose its profit or revenue.

Changing the ownership structure could address lingering corporate governance concerns stemming from the 2011 spinoff. That episode offered a reminder of the risks of investing in China, where companies often have to shift direction at Beijing's behest and where foreign investors have little recourse.

It might also soothe investors' concerns about potential conflicts of interest, since Mr. Ma's stake in the company that controls Alipay is much bigger than his roughly 7% interest in Alibaba.

Alibaba's value derives primarily from its ownership of China's leading online shopping destinations Taobao and Tmall, which together account for about 80% of the Chinese consumer e-commerce market, according to analysts. Those two sites generate most of Alibaba's sales, which grew 62% to $8 billion in 2013, from $4.9 billion in 2012.

Bernstein Research analyst Carlos Kirjner estimates Alibaba is worth between $240 billion and $250 billion, and that estimate includes just $6 billion for Alipay, reflecting the potential payout to Alibaba if the ownership structure isn't revised and Alipay eventually lists on its own. Bankers have struggled to value the payments unit since its financial results aren't disclosed and Alibaba has no direct ownership.