If Facebook doesn't feel ok, Yahoo couldn't be happier. Yahoo Inc. shares rose at 6.7% on May 18, after a report that it was close to selling part of its valuable stake. Chinese Internet entrepreneur Jack Ma is buying back up to half of a 40% stake in his Alibaba Group from Yahoo Inc. for $7.1 billion, in a deal that moves the Chinese e-commerce leader closer to a public listing. Under the agreement, Yahoo will sell half its stake in Alibaba for at least $6.3 billion in cash and up to $800 million in a new Alibaba preferred stock. The deal settles things between the two brands, since Alibaba constantly expressed the desire to purchase the 40% stake that Yahoo had bought for about $1 billion in 2005.
Alibaba Buys Back A Stake Held By Yahoo For $7.1 Billion
Alibaba and Yahoo were somehow partners, since the founder of the Chinese e-commerce company, Jack Ma, was a close friend to Jerry Yang, Yahoo's co-founder who led the initial investment in Alibaba. Unfortunately the relationship got cold, since Yang was replaced as CEO by Carol Bartz. Yahoo interim CEO, Ross Levinsohn, said the deal would provide clarity to the company's shareholders on what's one of its biggest investments. The deal was based on a $35 billion floor valuation of Alibaba. There is still a mistery who that big investors would look like, let's not forget Yahoo faced the darkest era of its existence and on the other hand, Alibaba has lost too some ground in Asia.
Yahoo needs Alibaba and any possible friend more than ever. The old pioneer has come under fire from shareholders for failing to take aggressive action for advertising revenue in front of Google Inc and Facebook. In addition to the possible deal, Yahoo and Alibaba will join their existing technology and intellectual property licensing, with Alibaba continuing to operate Yahoo China under the Yahoo brand for up to four years. Yahoo will be freed from restrictions on it, making other investments in China. Alibaba will offer royalty payment of $550 million to Yahoo and keep paying royalties for up to four years.
A source familiar with the deal said Yahoo asked Alibaba, which operates the popular Chinese online marketplace Taobao, to hold an initial public offering by end-2015. Alibaba would buy back half of Yahoo's remaining stake, a 10% holding, at the IPO price or allow Yahoo to sell those shares in the offering before end-2015. At this moment, Alibaba Group is valued at $30-35 billion, quite impressive for an Asian brand.
Alibaba said it would raise the money through a mix of cash, debt and equity. Sources said the group was in talks with Singapore state investor Temasek Holdings to raise about $2.3 billion in equity to close the deal. Things get more confused, since Temasek bought shares from Alibaba employees in September, so it's more likely that either Alibaba or Temasek to use the other partner as official interface, in order to avoid some taxes.
Alibaba has long been the dominant player in China's booming e-commerce sector, but the landscape has evolved with Amazon.com, Dangdang and 360buy emerging as tough competitors. Taobao, Alibaba's creations, has around 90% market share in China's consumer-to-consumer online trading and more than 53 percent of the business-to-consumer market.
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