Struggling Yahoo to sell half of Alibaba stake for $7.1bn
STRUGGLING internet company Yahoo has secured a lifeline after agreeing to sell half of its prized stake in Chinese ecommerce group Alibaba for about $7.1 billion, with most of the cash going to shareholders.
The deal, announced on Sunday in the US, will see Alibaba Group buying back half of its 40 percent stake from Yahoo for $6.3 billion cash and up to $800 million of Alibaba preferred shares.
The announcement caps at least a year of rocky on-and-off talks as Yahoo tried to sell the stake as part of efforts to turnaround its business.
Money from the sale will give Yahoo the financial firepower to return cash to disgruntled shareholders, many of whom are still upset after it squandered an opportunity to sell itself to Microsoft in May 2008 for $33 per share, or $47.5 billion. Yahoo’s stock has sagged since then, trading at $15.42 on Friday.
Yahoo said in a joint statement with Alibaba that it plans to return “substantially all” of the after-tax cash proceeds to shareholders. It said its share buyback program had been increased by $5 billion though a final decision on how to return the cash had not been made.
The deal, which closes in six months, is good for Yahoo because the company gets a “wad of cash” but still has exposure to fast-growing China, said Napoleon Biggs, head of digital integration at public relations firm Fleishman-Hillard Asia Pacific.
“China for them was like a sore tooth,” said Biggs, who has worked in the China Internet and media industry since 1997.
Yahoo’s interim CEO Ross Levinsohn said the stake sale provides clarity for Yahoo shareholders.
Levinsohn stepped into the role earlier this month after Yahoo cast aside CEO Scott Thompson because his official biography included a college degree that he never received.
Thompson had been working on a complex deal earlier this year that would have allowed Yahoo to escape taxes, but it fell apart. The deal announced on Sunday is taxable.
Alibaba and Yahoo also have an agreement for Yahoo to sell the remainder of its Alibaba stake in stages later on. Yahoo bought the stake in 2005 for $1 billion and the deal suggests it’s now worth $14.2 billion.
The statement also indicates Alibaba may hold an initial public offering in the future.
Under the terms of the deal, if Alibaba Group goes public, it would have to buy back another 10 percent stake from Yahoo or let Yahoo sell those shares in the IPO.
That condition expires in December, 2015, according to a blog post on Alizila, Alibaba’s in-house news site.
Alibaba Chairman and CEO Jack Ma said the deal establishes a “balanced ownership structure that enables Alibaba to take our business to the next level as a public company in the future.” Hangzhou, China-based Alibaba started out as a business- to-business website linking factories in China to buyers around the world. It also operates Taobao.com, the country’s version of eBay, and TMall, which brands can use to sell directly to consumers.