Yahoo Sunday finally cut a deal with Alibaba Group Holdings Ltd. <\/p>\n
It\u2019s agreed to sell half its 40% stake back to the Chinese e-commerce company for at least $6.3 billion in cash and $800 million in preferred stock. Alibaba will also pay Yahoo $550 million up-front and royalties for operating Yahoo China for at least four years. <\/p>\n
The companies have been trying to negotiate a deal for the last two year through four Yahoo CEOs, whichever way you count. <\/p>\n
Alibaba is supposed to go public by the end of 2015, which will give Yahoo the opportunity to dispose another 10% of its shares. Either Alibaba will buy them at the IPO price or Yahoo will sell them in the IPO. <\/p>\n
Yahoo bought its stake in Alibaba in 2005 for $1 billion. If Yahoo had only been as astute in valuing Microsoft\u2019s $47.5 billion acquisition offer four years ago. Microsoft offered $33 a share for Yahoo, which hasn\u2019t seen the upside of 20 bucks a share since.<\/p>\n
Alibaba represents a hefty piece of the US company\u2019s $19 billion market cap. <\/p>\n
The Chinese company is looking for $2.3 billion from existing investors to pay the tab and the amount Yahoo realizes depends on how equity financiers value Alibaba. It needs a valuation of $35 billion-$40 billion to pay Yahoo $7.1 billion; $45 billion would give Yahoo $7.6 billion and $50 billion $8.1 billion. Alibaba was valued at $32 billion in September.<\/p>\n
According to Yahoo CFO Tim Morse Yahoo intends to pay capital gains taxes on the deal, netting at least $4.2 billion after taxes and return \u201csubstantially all\u201d of that to shareholders. The deal is expected to close in the six months. <\/p>\n
Alibaba runs Alibaba.com, its core B2B site, as well as two of China\u2019s biggest online shopping sites Taobao and Tmall, the first for small merchants and second for established brands. <\/p>\n
One of its biggest problems is logistics, which basically stink in China. Payments are also a problem, according to Bloomberg, and it\u2019s facing share-eating competition. Being Chinese, counterfeit goods are a constant issue. <\/p>\n
Alibaba spun off its Alipay payment unit last year to a company controlled by Alibaba founder Jack Ma without telling Yahoo and claimed later that the Chinese government wouldn\u2019t license an electronic payment service that wasn\u2019t entirely Chinese-owned. It eventually made some restitution. It\u2019s believed Alibaba may want to expand its payments position.<\/p>\n
Softbank still owns 30% of Alibaba. It and Yahoo have agreed to dilute their voting rights below their combined 50% share ownership, giving Ma the control he craves.<\/p>\n
Yahoo will be able to make other investments in China if it chooses. Yahoo and Alibaba are also reportedly talking about strategic initiatives. <\/p>\n