Alibaba to buy back 20% of Yahoo’s stake for $7.1b
Alibaba Group has agreed to repurchase about a 20% stake in itself from Yahoo for $7.1 billion ahead of an initial public offering. The US internet company bought 40% of Alibaba - founded by Jack Ma (pictured) - in 2005, paying $1 billion plus ownership of Yahoo's China operations.
Yahoo will receive at least $6.3 billion in cash and up to $800 million in newly issued shares in Alibaba, according to a statement by the companies. Alibaba will also be required to either buy back a quarter of Yahoo's remaining stake at the price of a future IPO or let the US firm sell the shares in the IPO. The purchase price, based on equity financings, is subject to a floor valuation of about $35 billion.
Yahoo intends to return "substantially all" of the cash proceeds, after taxes, to shareholders. While the form of the returned capital hasn't been finalized, Yahoo has increased its share buyback authorization by $5 billion with the agreement. In addition, Alibaba will make an upfront royalty payment of $550 million and continuing royalty payments for as many as four years.
The companies have agreed to amend their technology and intellectual property licensing agreement, granting Alibaba a transitional license to operate Yahoo China under the Yahoo brand for up to four years. Furthermore, the US firm will no longer be subject to restrictions on investments in China.
Relations between the two companies have been strained for some time and Alibaba made no secret of its desire to repurchase Yahoo's stake. Negotiations have been drawn out by concerns over the US tax treatment of the divestment.
Alibaba approached lenders about financing part of the transaction last December, 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 September 2011, Silver Lake, DST Global, Temasek Holdings and Yunfeng Capital were part of an investor group that purchased $1.6 billion in shares from Alibaba as a tender offer to employee shareholders and option holders.
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