Alibaba to Buy Back Shares from Yahoo for $7.1 Bil.
Alibaba has repurchased about 20% of its shares from Yahoo for $6.3 bil. in cash and up to $800 mil. in new Alibaba non-voting preferred shares. The deal closes a multi-year effort by Alibaba founder Jack Ma to redeem the 40% of Alibaba shares sold to Yahoo in 2005 for $1 bil.
Ma has been frantic to buy back Alibaba shares for fear they will fall into the wrong hands as Yahoo’s fortunes declined steadily during the past decade, making it a progressively easier hostile takeover target for the likes of Microsoft or other major Silicon Valley firms. In the eyes of the investment world, the Alibaba shares have become Yahoo’s most valuable asset.
Yahoo’s ownership of Alibaba shares also posed an impediment to Ma’s widely-reported plans to take Alibaba public. Alibaba, based in Hangzhou, is China’s leading business-to-business e-commerce portal.
“This transaction opens a new chapter in our relationship with Yahoo,” said Alibaba Group chairman and CEO. “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.”
“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,” said Yahoo’s interim CEO Ross Levinsohn. “We look forward to continued collaboration with the Alibaba team on business initiatives as we explore joint opportunities for growth and benefit from Alibaba’s future.”
Under the amended technology and intellectual property licensing agreement, Yahoo grants Alibaba a transitional license allowing it to operate Yahoo China under the Yahoo brand for up to four years. At the same time it terminates Yahoo’s ability to make other investments in China.
The agreement also creates a framework for monetizing Yahoo’s remaining interests in Alibaba if the latter goes public. In that event Alibaba would initially be required to repurchase a quarter of Yahoo’s current stake at the price of its hypothetical IPO, or allow Yahoo to sell those shares in the offering. The second stage requires Alibaba to support Yahoo’s efforts to dispose of its remaining interests following the IPO.
Alibaba is widely expected to begin preparations for an IPO to take place during the next 18 months.