Struggling Internet company Yahoo Inc has secured a lifeline after agreeing to sell half of its prized stake in Chinese e-commerce group Alibaba (阿里巴巴) for about US$7.1 billion, with most of the cash going to its shareholders.
The deal, announced on Sunday in the US, would see Alibaba Group buying back half of its 40 percent stake from Yahoo Inc for US$6.3 billion in cash and up to US$800 million of Alibaba preference shares.
The announcement caps at least a year of rocky on-and-off talks, with Yahoo trying 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 Corp in May 2008 for US$33 per share, or US$47.5 billion. Yahoo’s stock has sagged since then, trading at US$15.42 on Friday.
Yahoo said in a joint statement with Alibaba that it planned to return “substantially all” of the after-tax cash proceeds to shareholders. It said its share buyback program had been increased by US$5 billion, though a final decision on how to return the cash had not been made.
Yahoo’s interim chief executive Ross Levinsohn said the stake sale provided “clarity” for Yahoo shareholders.
Levinsohn stepped into the role earlier this month after Yahoo fired former chief executive Scott Thompson because his official biography included a college degree that he never received.
Alibaba and Yahoo also have an agreement for Yahoo to sell the remainder of its Alibaba stake in stages at a later date. Yahoo bought the stake in 2005 for US$1 billion and the deal suggests it is now worth US$14.2 billion.
The statement also indicated that Alibaba could 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.
A blog post on Alizila, Alibaba’s in-house news site said that condition expires in December 2015.
Alibaba chairman and CEO Jack Ma (馬雲) said the deal established a “balanced ownership structure that enables Alibaba to take our business to the next level as a -public company in the future.”
After the US$7.1 billion transaction is completed, Yahoo and Japan’s Softbank, which owns 30 percent of Alibaba, will hold exactly 50 percent of Alibaba, but the two companies have agreed to cap their collective shareholder voting rights at less than 50 percent, according to the Alizila blog post.
That means Alibaba will be in the driving seat for decisions made by shareholders, though the board will still have control over strategic issues. Yahoo and Alibaba also agreed to modify their technology and intellectual property licensing agreements.
Under the changes, Yahoo will grant Alibaba a license to continue using the Yahoo China brand for up to four years. Alibaba will pay Yahoo US$550 million and make royalty payments over that period. However, Yahoo will no longer be restricted from making other investments in China.