Jack Ma is writing a cheque for $7.1 billion to buy back 40 percent of his Alibaba Group from Yahoo.
Under the agreement, Yahoo will sell half of its stake in Alibaba for at least $6.3 billion in cash and up to $800 million in new Alibaba preferred stock. The move is the end of over two years worth of negotiations.
It will also help Yahoo, which has been facing a slump in advertising revenue, give its stockholders a Christmas bonus to get them off its back.
Yahoo, along with analysts, think that Alibaba is going to go for an IPO soon. It did not want to sell its shares because these would go up in value. However Alibaba was not going to arrange an IPO when Yahoo was sitting on most of the stock.
According to the joint statement, Alibaba would buy back half of Yahoo’s remaining stake, or 10 percent, at the IPO price or allow Yahoo to sell those shares in the offering before end-2015. Alibaba Group is valued at $30-35 billion.
Yahoo’s Alibaba cash and its 35 percent holding in Yahoo Japan are one of the few significant assets the outfit owns.
Investors want Yahoo to sell them and return the proceeds to shareholders because too much of Yahoo’s value is locked up in its Asian assets.
Yahoo said it would return “substantially all” of the after-tax cash proceeds from the deal to its stockholders – and would increase its share buyback authorisation by $5 billion.