22nd May, 2012
Yahoo has agreed to sell off about half of its stake in Alibaba Group to the Chinese e-commerce giant as part of a $7.1 billion deal, the two companies jointly announced on Monday.
The sell off means Alibaba will buy back about 20 percent of its own company stake from Yahoo, giving the Chinese e-commerce giant greater control over its operations. “In return, Alibaba will pay Yahoo $6.3 billion in cash proceeds and up to $800 million in newly-issued Alibaba preferred stock,” the companies said in a statement.
The agreement also allows Yahoo to cash in on its remaining stake, once Alibaba decides to go public in the future. Alibaba will be required to buy one quarter of Yahoo’s current stake at the initial public offering price or allow Yahoo to sell off those shares.
Yahoo’s interim CEO, Ross Levinsohn, said in a statement that the deal would provide “clarity” to the company’s shareholders on what’s one of its biggest investments. The deal was based on a $35 billion floor valuation of Alibaba.
The two companies have been in discussions about Alibaba buying back its stake from Yahoo for years now. Originally, Yahoo had acquired about a 40 percent stake in the Chinese e-commerce giant as part of $1 billion deal made in 2005 that set the companies up as strategic partners.
But since then, the two companies have clashed at times over different business decisions.