Alibaba to Pay Yahoo $7.6 Billion for its 20% Stake
09/12/2012| 09:15am US/Eastern
According to sources close to the situation, Yahoo Inc. (>> Yahoo! Inc.) will officially close the multibillion-dollar sale of half its assets in China's Alibaba Group in one week.
Sources said the deal is set to be announced next Wednesday, in which the Chinese Internet giant will pay the Silicon Valley company $7.6 billion to buy back 20% of Alibaba. Yahoo still owns another 20%.
Yahoo will get $7.1 billion in the transaction, as well as a $550 million payment related to the ending of licensing fees that Alibaba has paid annually to Yahoo.
It's a huge return from when Yahoo co-founder Jerry Yang led a $1 billion investment in the then-fledgling Alibaba seven years ago, with a belief in its CEO and co-founder Jack Ma.
But once-cordial relations between the companies became tense in the ensuing years, as Ma sought to lessen Yahoo's 40% ownership.
After many public kerfuffles, Yahoo finally agreed earlier this year to sell half its stake. It still holds 20%, which could eventually reap even larger returns once the fast-growing Alibaba goes public in several years. Yahoo is required to sell 10% at that IPO and must sell the rest after that.
Still, Yahoo is getting a pile of money now. After taxes, that gives new CEO Marissa Mayer about $4.5 billion to use in some as yet undetermined way. But it will most likely be for a series of acquisitions to try to reinvigorate the long-troubled company.
Yahoo's board and later its Chief Financial Officer Tim Morse had promised to return the money to shareholders by way of a stock buyback. But, last month--in a move that quickly depressed Yahoo's shares and angered major investors--the company filed a statement saying that Mayer was reevaluating that move and could keep the money for other strategic reasons.
Given what a huge windfall it is getting, it will be interesting to see if the board of Yahoo--which is meeting next week, sources said--will choose to return a portion of the Alibaba money to shareholders. A recent similar move by AOL Inc. (>> AOL, Inc.)--using money it got from selling patents--was partially the reason for the recent run-up in its stock.
Yahoo could also presumably also give a special dividend to shareholders, but that is less likely.
That will be the question once Yahoo gets its cash in the kitty, which is no small feat.
The complicated transaction spans the globe, given the size of the borrowing--$8 billion, which will value Alibaba at $43 billion--that the company is doing to regain some control from Yahoo. The deal includes debt, as well as the sale of both convertible preferred and common shares, and includes a wide range of players.
That includes current investors, such as Silver Lake, DST Global and Singapore's Temasek Holdings, as well as many others.
"This is a lot of money flying around the world to complete this," said one person close to the situation.
Speaking of more money, it's still unclear where Yahoo is in its long and very drawn out negotiations with its other Asian partner, SoftBank Corp. (>> Softbank Corp), over selling its stake in Yahoo! Japan.
Sources said the deal was proceeding well right before Mayer was hired, but that she slowed down the talks to reevaluate the prices being discussed. Since then, shares in Yahoo! Japan have appreciated strongly, while shares in Yahoo itself have lagged.
It's a good thing that Yahoo has both its Asian assets--the value of them now makes up most of the company's valuation.
Until, of course, Mayer figures out a way to turn the money Yahoo is getting into more gold.
An Alibaba spokesman declined to comment and Yahoo's PR spokeswoman never speaks as per usual.
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