In a recent development , Yahoo Inc. is looking to sell back 15-25 % of the stake in Alibaba Group to the largest e-commerce firm in China . The deal of selling back the stock has been formulated so as to eliminate the complexities scuttling from the previous negotiations of the parties .
The two firms have been involved in negotiations for over a month now, but haven’t ascertained that the deal will go through definitely. In the recent few years , there have been many instances of a deal striking through where Alibaba was set to reclaim a part or the complete of the forty percent stake that Yahoo holds in the firm since acquiring it in 2005.
An asset swap worth $17 billion, tax-free, between the two fell through in February. The present deal wouldn’t be a tax free one but would be much more straightforward if sources are to believed. The complexity of the deal being much simpler , there would not be any complications in the form of IRS risks or the identification of assets. Presuming a best case scenario , the deal could be just a few weeks away. Even though there is a risk of complications brewing up after it was revealed that Yahoo’s CEO Scott Thompson falsely claimed in his resume to have a computer science degree in college.
Initially Yahoo in its statement had called the matter as an “inadvertent error” but they are now having their board review the matter. Third Point , which is in charge of the proxy battle against the board of directors and which found out the anomaly in Thompson’s resume has asked for Thompson’s firing by Monday. Both Yahoo and Alibaba did not comment on the matter.
Yahoo , during the earnings report of the first quarter, had acknowledged the talks with Alibaba , conforming that the two parties were trying to work out a “simplified transaction for monetizing a part of Yahoo’s share in Alibaba” . For funding of the deal , Alibaba will be raising capital . The valuation received in the fund raising exercise will determine yahoo’s earnings in the deal.
In September last year , after Silver Lake and some other firms invested in Alibaba, it was valued to be somewhere around $32 billion. If that valuation is taken into consideration , Yahoo will be making $4.8 -$8 billion if it sells 15-25 percent of its stock share. As compared to all the previous deals , this one has the most likely chance of getting through .