Yahoo, Alibaba deal talks flounder – reports
Negotiations between Yahoo and Alibaba over the US firm’s potential divestment of its stake in the Chinese e-commerce giant are said to have reached an impasse. There are conflicting reports as to the cause of problems, but some suggest it rests on whether a deal structure that minimizes Yahoo’s tax exposure from the sale is still available.
"Over the last few days in Hong Kong, it became evident that they don't really have a desire to do this deal," a source told Reuters, dismissing speculation that both sides might have split on valuation terms agreed upon in December. "A cash-rich split appears to be toast."
Yahoo owns 40% of Alibaba and 35% of Yahoo Japan - with Softbank holding most of the remainder - and the two Asian companies have bid around $17 billion for both stakes. The cash-rich split structure would see Yahoo would transfer most of its Alibaba stake and all of its Yahoo Japan stake to the Asian firms and receive stock in specially constructed subsidiaries containing cash and assets in return. Under US tax law the transaction wouldn't be considered a sale, so no taxes could be levied on it.
Alibaba has already approached lenders about financing part of the transaction, reportedly seeking around $4 billion. A leveraged finance source told AVCJ that although it is essentially a corporate transaction, a number of private equity sponsors are likely to feature in the bond issue.
In the absence of the cash-rich split, the parties could pursue a taxable deal, but this would have an impact on perceived valuations. Shares in Yahoo closed down 4.7% at $15.36 on Tuesday.
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