Yahoo to reduce its Alibaba stake
Alibaba’s stock buyback
In a multi-million dollar agreement, Alibaba is due to buy back shares from Yahoo.
According to sources close to the situation, the deal which was first announced in May 2012 is set to take place soon. Yahoo will receive $4.5 billion (£2.8 billion) after tax from selling half of its Alibaba shares, reducing its stake in the Chinese internet company from 40 percent to 20.
A future Alibaba IPO will require Yahoo to sell a further 10 percent of its shares, either back to the Alibaba Group or to the public. With its outstanding 10 percent, the Silicon Valley internet company has the chance to reap an even bigger reward by selling the remaining stake.
A strained relationship
The Alibaba buy back deal will see Yahoo receive a large return on its initial investment. In 2005, Yahoo co-founder Jerry Yang paid $1 billion (£620 million) for the 40 percent stake, helping Alibaba during a time of need.
Following a number of disagreements, including the Alipay ownership query and Yahoo! Hong Kong, the relationship between Yahoo and Alibaba soured. After many failed attempts to come up with a tax-free deal, the two internet companies finally agreed to a taxable agreement which would see Alibaba buy back a 20 percent stake.
In a regulatory document, it appears that Yahoo CEO Marissa Mayer will use the $4.5 billion to invest in new companies rather than buying back Yahoo shares. A Bernstein Research analyst said: “We have a hard time seeing how today’s Yahoo! could acquire a significant (emerging) Internet or media property, or multiple mid-size businesses, and create value.”
Natalie Booth, online marketing manager at theEword, said: “Previously, Yahoo has suggested that it would return most of the funds to shareholders. Mayer’s shift in direction could give the company a chance to bring in new talent, leading to innovation and growth.”