The purchase may pave the way for Alibaba, China’s largest e-commerce provider, to pursue an initial public offering in the next 18 months. Alibaba, helped by shareholders Temasek Holdings Pte., Digital Sky Technologies, Silver Lake, plans to finance the purchase with cash and debt.
Alibaba has been trying to buy back the stake in itself for more than a year and stepped up efforts in September, when the U.S. company fired former chief executive officer. Reducing the Alibaba stake lessens Yahoo’s toehold in China, the world’s largest Internet market, while also making a takeover of the U.S. company more likely, said an analyst at Stifel Nicolaus & Co.
For Yahoo shareholders, the sale and subsequent march towards an IPO is a clear positive, as many questioned whether Yahoo would be able to monetize its China assets at all. In addition, the capital required to take Yahoo private is reduced with each Alibaba monetization event.
Yahoo has come close to selling the stake in the past and failed, and a deal may be postponed. Yahoo currently owns a 40 percent stake in Alibaba so the current proposal under discussion would cut that holding in half.
The companies struggled to make headway on negotiations, failing to reach an agreement to let Alibaba Group buy back shares in 2010. Yahoo acquired the stake in 2005 in exchange for $1 billion and ownership of Yahoo’s Chinese unit.
Fissures became public by January 2010 when Alibaba Group described as “reckless‘‘ Yahoo’s support for Google Inc., which tangled with Chinese authorities over the nation’s Web- censorship rules.
In May of last year, Yahoo’s rift with Alibaba widened after the Web portal said the Chinese company spun off its online payment business without informing shareholders. Yahoo said it wasn’t consulted about the transfer of the Alipay unit to a company mostly owned by the chief executive officer of Alibaba Group.
Yahoo had a board meeting to review the transaction and will consider a dividend payment, AllThingsD reported May 17. The website said the deal is likely to value the portion of Yahoo’s holdings at about $7 billion, or 20 percent of Alibaba’s $35 billion enterprise valuation. After a potential IPO, Yahoo could sell more of its stake, AllThingsD reported.
Yahoo, which failed to keep pace with growth at Google and Facebook Inc., is pursuing active discussions with the Chinese company.
Yahoo had also been in discussions about selling its stake in Yahoo! Japan to Tokyo-based Softbank Corp. Those talks have gone cold over price and have not resumed.
Yahoo considered a deal with Alibaba and Softbank that would cut its stake in Alibaba to about 15 percent from about 40 percent.