Yahoo is Reported to Plan $18 Billion Stake Sales in China and Japan

Yahoo! Inc. is considering cutting its 40 percent stake in Alibaba Group Holding Ltd. to about 15 percent, two people briefed on the matter said.

Yahoo, the US internet company, is considering a complex plan to shed a large part of its Asian investments that could put a value of as much as $17bn on the holdings, according to people familiar with the proposal. Photo: Dan Theurer/Flickr

Internet giant Yahoo may shed its substantial holding in China’s Alibaba Group and in its Japanese affiliate in transactions totalling about USD 18 billion, says a media report.

The offer – the latest among proposals put forth in recent months to resuscitate the once high-flying Internet company – is expected to be considered by Yahoo’s board on Thursday, sources said.

The board was uninterested in entertaining offers for the entire company at this point, said one of the sources, who spoke on condition of anonymity.

The Yahoo board is scheduled to meet later today to consider the transaction, said the people, who asked to remain anonymous because the deliberations are private.

The deal, which may let Alibaba repurchase the stake in a tax-free manner, values the Asian assets at about $14 a Yahoo share, or more than $17 billion, one of the people said. Yahoo also would sell all of its stake in Yahoo Japan Corp. in the deal, this person said.

“Yahoo is discussing a plan to substantially cut its 40 per cent stake in Chinese e-commerce companyAlibaba Group Holding Ltd and sell its 35 per cent ownership position in Yahoo Japan,” The Wall Street Journal reported.

The Asian split-off plan to be considered by the board follows previous proposals by private equity firms to buy a minority stake in Yahoo. Those proposals were fiercely opposed by some of Yahoo’s largest shareholders, including activist hedge fund manager Dan Loeb, of Third Point LLC.

“It’s clear that Dan Loeb at Third Point is exerting some influence,” said Adam Seessel, director of research at Martin Capital Management, which added to its position in Yahoo a few weeks ago. He “is doing all Yahoo shareholders a favor by looking over the board and making sure they do the right thing.”

Alibaba stepped up efforts to buy back the stake after the September ouster of Yahoo Chief Executive Officer Carol Bartz, who had opposed a sale. Yahoo, buffeted by user attrition and search-market share losses to Google Inc., is also considering proposals by private-equity firms seeking to buy minority stakes.

“Yahoo is probably more determined to find a solution to this,” said Paul Wuh, head of Internet research at Samsung Securities Co. in Hong Kong. “They obviously changed their CEO, which makes it a bit easier now.”

Yahoo shares, which languished in the red along with much of the technology sector on Wednesday, reversed course and ended the session almost 6 percent higher at $15.99. It inched further upward in after-hours trading to $16.09.

The deal would essentially mean that Yahoo’s core U.S.-based Internet business is valued at only $2 a share, according to Lawrence Haverty, a fund manager with GAMCO investors, which owns Yahoo shares.

Yahoo acquired its stake in Alibaba, based in Hangzhou, eastern China, for about $1 billion in 2005. Alibaba Group is China’s biggest e-commerce company.

The transaction has a complicated structure and may take several weeks to complete, a person with knowledge of the matter said. Alibaba and Softbank Corp., the co-owner of Yahoo Japan, are seeking to repurchase stakes held by Yahoo without triggering taxes associated with the gains on the investments.

To help do that, Alibaba and Softbank each would create a standalone entity, investing cash and operating assets in each, another person said. Yahoo would then exchange all of its stake in Yahoo Japan and most of its stake in Alibaba for those new entities, this person said. Yahoo would retain 15 percent of Alibaba, this person said.

“It’s definitely a step in the right direction. It shows that the board is thinking about shareholders as opposed to their own interests,” Martin Capital’s Seessel said.

Yahoo declined to comment. The possible deals were first reported in The New York Times.

Last week, sources told Reuters a consortium consisting of private equity group Silver Lake, Microsoft Corp and venture capital firm Andreessen Horowitz were reworking a bid for a minority stake in Yahoo. [via Reuters and Business Week]

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