Yahoo Inc has resolved a dispute with Alibaba Group over the Chinese company's transfer of its online payment system, Alipay, to Chief Executive Jack Ma, two sources close to the matter said.

The two companies reached an agreement before Yahoo's analyst meeting last Wednesday, one of the sources said. But the deal requires the consent of Softbank Corp founder Masayoshi Son who is an Alibaba board member, and he has been reluctant to come to the negotiating table, the sources said.

The agreement comes on the heels of escalating tensions between Yahoo, which owns 43 percent of Alibaba, and the Chinese company over the change of ownership of Alipay to CEO Ma. The transfer resulted in heated contradictory volleys between Yahoo and Alibaba over the timing of the disclosure.

Yahoo claimed it had been blindsided by the deal, while Alibaba countered that Yahoo was aware of the transaction by virtue of having a board seat now held by former Yahoo chief executive and director Jerry Yang.

Alibaba and Yahoo declined to comment on the agreement. Softbank was not immediately available for comment.

A source familiar with the matter said Yahoo is encouraged with the progress of the discussions.

Terms of the agreement include points made during Yahoo's analyst meeting last week, according to the sources. Yahoo Chief Financial Officer Tim Morse said the company was still in negotiations with Alibaba and laid out a framework for a deal involving compensation and value of Alipay.

Morse likened the relationship between Alipay and Taobao, the largest online shopping website in China and a subsidiary of Alibaba and Yahoo Japan Corp, to that of PayPal and Ebay Inc. The executive said the economic arrangement needs to remain intact in order to create value.

Yahoo's stake in Alibaba and its 35 percent ownership in Yahoo Japan are considered the U.S. Internet company's most valuable assets. Softbank holds a major stake in Alibaba and also 42 percent of Yahoo Japan.

Many Yahoo investors consider Alibaba and Yahoo Japan to represent most of Yahoo's value.

The Alipay transfer and its timing is only a small act in a larger drama playing out among Yahoo, Alibaba Group, also the owner of Alibaba.com, and Softbank.

Alibaba's Ma has made it clear he wants to reduce Yahoo's stake in the company, while Softbank and Yahoo in March were in advanced talks for Yahoo to leave its Japanese joint venture transferring its stake to Softbank.

Last week Morse said Yahoo had made some nice progress in looking at a number of tax-efficient options, including a traditional spinoff or issuing a so-called tracking stock, which would track the performance of the Japanese unit without conferring ownership.

We really want to do something with these assets. We're not up here saying 'yeah, yeah, we're talking,' Yahoo Chief Executive Carol Bartz told investors during the analyst meeting last week.

Yahoo is still mulling a number of options, including the separation of its entire Asian businesses, including Alibaba, said a source close to the matter.

Some investors believe those assets could potentially be worth as much as Yahoo's entire current market value and are betting that an IPO by privately held Alibaba, or one of its subsidiaries, could boost Yahoo's valuation.

In the past, investors have also called for Yahoo to sell off part of its investments and buy back its own shares.

Shares of Yahoo closed up 3.31 percent at $16.55 on the Nasdaq on Tuesday.

(Reporting by Nadia Damouni and Jennifer Saba in New York; Editing by Richard Chang and Matthew Lewis)

China Yahoo