Yahoo will sell half its holding in Alibaba (40%) for $7.1bn ($6.3bn cash, $800m shares), it will still retain a 20% stake in the company, which it will exit in stages. This values Alibaba at approximately $35bn.
Yahoo and Alibaba have long been struggling to come to terms for the US company to exit its Chinese investment.
The agreement between the two companies means that Yahoo will be able to cash up its remaning shares in Alibaba in stages. At the time of any Alibaba IPO, it will be required to either repurchase one-quarter of Yahoo’s stake at the IPO price, or allow Yahoo to onsell those shares as it sees fit (the first 10%).
Following this as-yet-unconfirmed IPO, Yahoo will have rights to marketing support from Alibaba to enable Yahoo to dispose of its remaining shares, at times of Yahoo’s choosing (its final 10%).
As part of the agreement, Alibaba will continue to operate Yahoo China brand for the next four years, and has paid an upfront lump sum royalty payment of $550m. Royalty payments will continue for the duration of the arrangement. Yahoo will also continue to be represented on Alibaba’s board of directors with the right to appoint one of four existing directors.
"I look forward to working with Ross Levinsohn and the Yahoo! team as Alibaba builds China’s leading e-commerce company. Yahoo!’s global audience reach will provide attractive partnership opportunities for Alibaba to explore markets outside of China. The transaction will establish a balanced ownership structure that enables Alibaba to take our business to the next level as a public company in the future," said Jack Ma Alibaba’s Chairman and CEO.
Yahoo has said that it will return the proceedings of the sale to shareholders, while this has not been finalised, the board has authorised Yahoo’s share buyback authorisation by $5bn.
"We look forward to delivering the proceeds of the near-term transaction to our shareholders, and to the further enhancement of value and the additional monetization in the future that this agreement enables," said Timothy Morse, Executive Vice President and CFO of Yahoo.
Yahoo has struggled since an attempted takeover by Microsoft in 2008, which saw the company valued at around $50bn. Its market cap is now just short of $20bn, its most recent financial results weren’t pretty.
In that time, the company has been through 5 CEOS (two interim), including Scott Thompson who stepped down last week following allegations that he lied on his CV and reported ill health.
