Yahoo (NASDAQ:YHOO), which currently owns 41.7 percent of Chinese e-commerce giant Alibaba Group, has come to a formal agreement with Alibaba to allow it to buy back 20 percent of that stake. With Alibaba worth just over US$35 billion, the repurchase will see Yahoo net approximately $7.1 billion.
Ross Levinsohn, the interim CEO of Yahoo, said in a joint press release that, “Today’s agreement provides clarity for our shareholders on a substantial component of Yahoo’s value and reaffirms the significance of our relationship with Alibaba.” It’s not clear how long this deal has been in the works, or how much it might’ve been delayed by the troubled search engine being on its third CEO so far this year. Levinsohn also thanked Alibaba CEO and founder Jack Ma and the other key players in “this successful outcome.”
The deal also outlines how Yahoo can monetize its ongoing stake in Alibaba – which runs online shopping sites such as Taobao and Tmall – in the future. It includes a framework for the event of Alibaba Group opting to IPO, in which case “Alibaba will be required either to repurchase one-quarter of Yahoo’s current stake at the IPO price or allow Yahoo to sell those shares in the IPO.” But a listing isn’t an apparent plan for the group. Indeed, its sole listed entity, the business-to-business trading site Alibaba.com, is hoping to delist from the Hong Kong Stock Exchange this summer in a privatization move.
[UPDATE: A shareholder vote later in the week decided, with a 95 percent approval rate, that the privatization will go ahead in mid-June].
How will Alibaba raise all that cash? The joint statement notes: “Alibaba intends to finance the repurchase through a combination of its own cash resources, debt, equity and equity-linked financing. The transaction is expected to close within approximately six months.”
[UPDATE: A couple of days later we heard that sovereign wealth fund CIC might be wanting to plough in $2 billion in such "equity-linked financing."]
Also today, Alibaba’s contract to run Yahoo China has been extended for another four years. The Chinese version of the web portal and search engine is not popular in the country, its online search market share never even troubling the statisticians in a market dominated by Baidu, Google, and Sogou.