Yahoo has finalized a deal to sell its stake in the Alibaba Group, which has so far been an important asset to the company. Alibaba Group is a Chinese e-commerce powerhouse and Yahoo owns 40 percent stake in the group which it plans to sell away for $7.1 billion.
The proceeds will mostly be distributed through a dividend by Yahoo. In addition to $800 million in stock, this sale will fetch Yahoo $6.3 billion in cash. Once the taxes have been taken care of, $4.2 billion will be the final amount available to the company. Yahoo’s shares posted a healthy rise on the back of this news. Earlier, Yahoo had tried working the Alibaba deal while ensuring that they wouldn’t have to pay heavy taxes. However, the deal fell through. According to the new deal, Yahoo can still sell a part of its stake at the share price of Alibaba’s IPO. Alibaba is now looking at limiting external ownership while trying to stick to the new regulations on internet companies in China, pointed out CEO Jack Ma.
Yahoo recently revamped its board by appointing an interim CEO, Ross Levinsohn, and added a few other new members as well. Yahoo’s decision was agreed upon by all the board members. Yahoo is now looking at collaborating with Alibaba and helping them expand outside of China. Though Yahoo can cash in on a part of the stake, their main worry will continue to be expanding their internet search and mobile business. According to analysts, the IPO will not be happening this year.
Alibaba plans to seek the help of its shareholders to raise finances through equity, debt and cash required for this deal, and may even consider bringing in private equity financing. While Yahoo suffers from decreasing revenue, layoffs and management restructuring, it could consider selling its Asian assets to raise cash. They may even cut away from Yahoo Japan, however no such deal is speculated to be on the cards yet. Levinsohn, the interim CEO, could also look at working on Yahoo Finance and Sports rather than investing on social networking to turn around the company.
This deal with Alibaba could be a much needed comeback for Yahoo and may succeed at pacifying frustrated investors. However, Yahoo is not expected to entirely distance itself from China and stay involved in some manner through the Alibaba Group. Alibaba is expected to pay Yahoo royalties for four years along with an immediate royalty payment of $550 million.
May 26, 2012 at 2:17 am
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