Yahoo’s directors unanimously approved a deal on Sunday to sell about half of its 40 percent stake in the Alibaba Group back to the Chinese Internet company, concluding years of efforts by the two to reach an agreement.
Under the terms of the proposed transaction, Alibaba will buy back the stake, valued at about $7.1 billion.
Yahoo will divest an additional 10 percent of the Chinese company when Alibaba files for an initial public offering, which could come in the next few years. Yahoo expects to sell the remainder of its stake at a later date.
While the deal is valued at $7.1 billion, based on a $35 billion valuation of Alibaba, it could rise significantly. Alibaba is financing the transaction through a combination of debt and equity, and may pay Yahoo shareholders more if it raises the money at a higher valuation.
Yahoo, a troubled Internet media company, plans to use the proceeds to increase shareholder value, principally by buying back a large number of shares. That would have the effect of shoring up Yahoo’s sagging stock price. The company, which has churned through three chief executives over three years, has been trying to improve on slow growth in advertising revenue.
“Today’s agreement provides clarity for our shareholders on a substantial component of Yahoo’s value and reaffirms the significant of our relationship with Alibaba,” Ross Levinsohn, Yahoo’s interim chief executive, said in a statement.
Yahoo has also been trying to reach a deal with Alibaba for years. Yahoo first invested in Alibaba in late 2005, helping the Chinese e-commerce company become one of the dominant Internet players in China. That growth has made Yahoo’s stake one of its most valuable assets, worth more than its core business in the United States.
But the two companies have coexisted uneasily. Often, the relationship was tense. Yahoo and Alibaba talked about selling off some of the stake in 2010, only for the American company to back off. The turnaround upset Alibaba’s chief executive, Jack Ma, laying the groundwork for further conflict between him and Yahoo executives.
Mr. Ma and Yahoo, for instance, fought fiercely over Alipay, formerly Alibaba’s online payments business, which Mr. Ma spun out in 2010. As one of Alibaba’s largest investors, Yahoo loudly protested the move, claiming it had not received proper notification of the deal nor granted approval. The drama lasted for months before the sides announced a settlement in July.
Beginning last year, Alibaba and Yahoo began discussions about a “cash-rich“ split, a complex transaction that essentially amounted to an asset swap. Under the terms of those talks, Yahoo would have divested more than half of its stake, eventually receiving billions of dollars. But the talks stalled a few months ago, amid disagreements on breakup fees and the value of the Alibaba stake, people familiar with the matter have said. There was also concern that the Internal Revenue Service would not bless the deal as a tax-free transaction.
The two companies broke off talks in February after months of negotiations.
In March, discussions resumed in earnest, when Joseph Tsai, Alibaba’s chief financial officer, flew to Silicon Valley to meet with Scott Thompson, then Yahoo’s newly minted chief executive. The deal was largely negotiated by Mr. Tsai and Yahoo’s chief financial officer, Timothy R. Morse, who will remain on Alibaba’s board.
Mr. Thompson was removed as chief executive after a dissident shareholder exposed a padded résumé. He has been succeeded on an interim basis by Mr. Levinsohn.
Under the terms of the proposed transaction, Alibaba will buy back the stake, valued at about $7.1 billion.
Yahoo will divest an additional 10 percent of the Chinese company when Alibaba files for an initial public offering, which could come in the next few years. Yahoo expects to sell the remainder of its stake at a later date.
While the deal is valued at $7.1 billion, based on a $35 billion valuation of Alibaba, it could rise significantly. Alibaba is financing the transaction through a combination of debt and equity, and may pay Yahoo shareholders more if it raises the money at a higher valuation.
Yahoo, a troubled Internet media company, plans to use the proceeds to increase shareholder value, principally by buying back a large number of shares. That would have the effect of shoring up Yahoo’s sagging stock price. The company, which has churned through three chief executives over three years, has been trying to improve on slow growth in advertising revenue.
“Today’s agreement provides clarity for our shareholders on a substantial component of Yahoo’s value and reaffirms the significant of our relationship with Alibaba,” Ross Levinsohn, Yahoo’s interim chief executive, said in a statement.
Yahoo has also been trying to reach a deal with Alibaba for years. Yahoo first invested in Alibaba in late 2005, helping the Chinese e-commerce company become one of the dominant Internet players in China. That growth has made Yahoo’s stake one of its most valuable assets, worth more than its core business in the United States.
But the two companies have coexisted uneasily. Often, the relationship was tense. Yahoo and Alibaba talked about selling off some of the stake in 2010, only for the American company to back off. The turnaround upset Alibaba’s chief executive, Jack Ma, laying the groundwork for further conflict between him and Yahoo executives.
Mr. Ma and Yahoo, for instance, fought fiercely over Alipay, formerly Alibaba’s online payments business, which Mr. Ma spun out in 2010. As one of Alibaba’s largest investors, Yahoo loudly protested the move, claiming it had not received proper notification of the deal nor granted approval. The drama lasted for months before the sides announced a settlement in July.
Beginning last year, Alibaba and Yahoo began discussions about a “cash-rich“ split, a complex transaction that essentially amounted to an asset swap. Under the terms of those talks, Yahoo would have divested more than half of its stake, eventually receiving billions of dollars. But the talks stalled a few months ago, amid disagreements on breakup fees and the value of the Alibaba stake, people familiar with the matter have said. There was also concern that the Internal Revenue Service would not bless the deal as a tax-free transaction.
The two companies broke off talks in February after months of negotiations.
In March, discussions resumed in earnest, when Joseph Tsai, Alibaba’s chief financial officer, flew to Silicon Valley to meet with Scott Thompson, then Yahoo’s newly minted chief executive. The deal was largely negotiated by Mr. Tsai and Yahoo’s chief financial officer, Timothy R. Morse, who will remain on Alibaba’s board.
Mr. Thompson was removed as chief executive after a dissident shareholder exposed a padded résumé. He has been succeeded on an interim basis by Mr. Levinsohn.
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