Yahoo Strikes $7.1 Billion Deal to Reduce Stake in China's Alibaba

12:24 AM PST 05/21/2012 by Georg Szalai

The Internet company currently holds a stake of about 40 percent and has been looking to unwind their seven-year relationship.

Yahoo has struck an agreement with Chinese online giant Alibaba Group for Yahoo to sell its stake in Alibaba in stages.

In a first step to finally unwind their seven-year relationship, Alibaba will buy back up to half of Yahoo's stake 40 percent in the company.

The price will be based on a valuation to be established later, but the companies said they will use a valuation of at least around $35 billion for Alibaba. That would mean that Yahoo could get approximately $7.1 billion in the initial 20 percent stake sale, including at least $6.3 billion in cash and up to $800 million in Alibaba preferred stock.

Alibaba will also make an upfront lump sum royalty payment of $550 million to Yahoo and continuing royalty payments for up to four years.

"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 Ross Levinsohn, interim CEO of Yahoo.

"This transaction opens a new chapter in our relationship with Yahoo," said Jack Ma, chairman and CEO of Alibaba. "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."

The news comes after Scott Thompson left Yahoo's CEO post amid a resume controversy.

Pivotal Research Group analyst analyst Brian Wieser estimated that after taxes, Yahoo could get $5 billion in cash from the $7.1 billion deal component.
   
"Paired with the appointment of a strong new board and an interim CEO who should be able to better focus on the core business, positive catalysts are now emerging for the company," he said.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai

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