Alibaba closing in on buying $7 billion stake from Yahoo

by Fiona Gabriel | Saturday, May 19, 2012 | 328 views

In fresh developments, Alibaba Group Holding Lts. Have neared a final agreement with Yahoo Inc. over a $7 billion buy-back plan , which shall return to it 20 % stake in itself. The deal could be announced as soon as tomorrow morning , sources said.

The deal may set pace for Alibaba to go for an initial public offering in the coming 18 months. The largest e-commerce service provider in China has been looking to do so for long now, Its share holders were helped in planning and purchase of the buy back in cash and debt. The involved firms include Temasek Holdings Pte. , Silver Lake and Digital Sky Technologies.

The move was being planned for over an year now , and the pace was increased in September after CEO Carol Bartz was ousted by the U.S company. Having reduced the stake in Alibaba, Yahoo will lose the toehold in the world’s largest internet market, China, . It shall also make the takeover over it more likely.

The sale and the events leading towards the IPO  is clearly a positive for shareholders of Yahoo, with questions being raised on Yahoo’s capability to monetize its assets in China. With every monetization event at Alibaba, the required capital for Yahoo to go private goes down.

The two companies have come very close to finalizing a deal over the sell-off in the past as well, however it just kept getting postponed. Yahoo which currently has a 40 percent holding in Yahoo , will have it stakes cut down by half following the deal.

Under Bartz , the two firms had failed in making any headway on the negotiations for buying back the shares. Yahoo had in 2005 acquired the h40 % stake in return of $1 billion and Yahoo’s Chinese unit being owned by Alibaba.

The differences between them became public when Alibaba criticized Yahoo over its “reckless” support for Google INc. . which had been tangled with authorities in China over web-censuring issues.

The rift got widened after Yahoo blamed Alibaba for spinning off the online payment sector without letting the shareholders know, Yahoo wasn’t consulted before transferring the Alipay unit to s affirm owned by the Alibaba CEO , Jack Ma.

In a board meeting , Yahoo reviewed the transaction and a dividend payment is being considered.. The deal will set a valuation of $7 billion on Yahoo’s stake , which is about 20 % of the valuation of $35 billion of Alibaba. Yahoo could be selling off more of its stake , following an IPO.

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