Yahoo! to Sell Back Half of its Alibaba Stake for $7.1 Billion

Yahoo has agreed to sell half of its 40 percent stake in Chinese e-commerce company Alibaba for about $7.1 billion.

For Jack Ma and Yahoo!, the end of their strained relationship is finally in sight. On Sunday night, Ma’s Alibaba Group and Yahoo! announced a deal under which the Chinese e-commerce company would buy back a roughly 20% stake in itself from the struggling U.S. web portal for about $7.1 billion. Photo: World Economic Forum/Flickr

According to Yahoo, the plan includes a transaction this year where Alibaba will purchase up to one-half of Yahoo’s current stake in the top Chinese e-commerce company. The transaction  could generate more than $7 billion in proceeds.

“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! said.

“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.  I want to thank Jack Ma, Joe Tsai and the Alibaba team, as well as Tim Morse, Michael Callahan and our Yahoo! team for their dedication in achieving this successful outcome,” Levinsohn said.

Yahoo’s 40% stake in Alibaba, purchased in 2005 for $1 billion, is widely considered to be the company’s greatest asset. But the relationship has been quite whimsical, punctuated with public disagreements over company direction, as well as Yahoo siding with Google in its 2010 fight with Chinese regulators.

“This transaction opens a new chapter in our relationship with Yahoo!. I look forward to working with Ross Levinsohn and the Yahoo! team as Alibaba builds China’s leading e-commerce company,” said Jack Ma, Chairman and Chief Executive Officer of Alibaba Group.

“Yahoo!’s global audience reach will provide attractive partnership opportunities for Alibaba to explore markets outside of China.  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,” Ma said.

According to FT, the two companies started negotiations for the deal arounf the time former Yahoo chief executive Carol Bartz was fired in September. Tim Morse, Yahoo’s chief financial officer who stepped in as interim chief executive, led Yahoo’s negotiations.

Scott Thompson, who served as Yahoo chief executive for just three months before he had to leave the group over inaccuracies on his résumé, was not instrumental to the deal closing but did not obstruct it either.

“The sale of half of Yahoo’s Alibaba stake would represent the partial achievement of a goal that has eluded Yahoo for years,” Clayton Moran, an analyst at Benchmark Co., said in an e-mailed statement following the announcement.

“It appeases shareholders, may give employee morale a much-needed boost, and starts CEO Ross Levinsohn’s term with a win,” said Moran.

“The cash from a transaction will help Yahoo as it grapples with the challenges in its business,” Jim Tang, a technology analyst at Shenyin Wanguo Securities in Shanghai, said. “While Alibaba is the clear leader in the Chinese e-commerce market, it’s been difficult for Yahoo to cash out of its investment, since Alibaba is not publicly traded.”

Under the deal, Yahoo will receive $6.3 billion in cash and up to $800 million in newly issued Alibaba preferred stock.

“We look forward to delivering the proceeds of the near-term transaction to our shareholders, and to the further enhancement of value and the additional monetization in the future that this agreement enables,” said Timothy R. Morse, chief financial officer of Yahoo.

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