Yahoo! sells 17% of its Alibaba stake

Yahoo has inked a deal to sell a portion of its stake in Chinese internet powerhouse Alibaba. The deal, which comes just months after the appointment of new CEO Marissa Mayer, will net the company net US$4.3-billion, US$3.65-billion of which will be given back to shareholders, reports the Wall Street Journal.

In a memo to company employees Mayer noted that this “outcome is terrific for Yahoo,” and that it “generates liquidity to create substantial value for our shareholders, while retaining a meaningful amount in the company to invest in our future. Also, because we still own 23% of Alibaba’s common stock, we have the opportunity to benefit from future upside when Alibaba IPOs.”

Since the axing of Carol Bartz Yahoo’s colourful CEO there is as been uncertainty around the future of the Yahoo/Alibaba relationship. One of the biggest point of contention for the two companies was over Alibaba’s Alipay platform which Alibaba’s CEO Jack Ma moved out of the Alibaba group without prior approval from the board of directors, of which Yahoo! is a member.

According to the Journal, the deal will see the Sunnyvale-based company receive about US$6.3-billion in cash, US$800-million in preferred stock in Alibaba and US$550-million as a result of amending the firms’ technology and intellectual-property licensing agreement.

Yahoo! paid US$1-billion for its Alibaba stake in 2005, an investment which was regarded as one of the company’s healthiest assets as it made it part of one the world’s fastest growing internet markets.

According to a report from The Business Insider, Yahoo is also currently working on selling a portion of its Yahoo! Japan stake. However the proceeds from this sale will most likely remain in Yahoo’s hands, ready for future investments.

The memo in full:

Hi Yahoos,

Today we reached a very important milestone in our relationship with Alibaba – we closed a transaction selling some of our Alibaba Group shares for $7.6 billion. After taxes and fees, we have received approximately $4.3 billion. We’ll be issuing a press release imminently.

We have reviewed our strategy for the proceeds with the board of directors and have agreed that we will be returning approximately $3.65 billion to shareholders. This amount includes a ‘down payment’ of $646 million that we made over the past few months in the form of stock buybacks since the transaction was announced, as well as an additional $3 billion from today’s proceeds.

This outcome is terrific for Yahoo!. It generates liquidity to create substantial value for our shareholders, while retaining a meaningful amount in the company to invest in our future. Also, because we still own 23 percent of Alibaba’s common stock, we have the opportunity to benefit from future upside when Alibaba IPOs.

I’d like to take a moment to thank Tim Morse, Ron Bell and everyone on their teams who worked on this deal. Today’s announcement is the result of years of savvy investment, hard work, creativity and tenacity in order to navigate an extremely complicated set of legal and tax parameters. The team’s execution has been excellent and positions Yahoo! well for future growth. Congratulations!

In the last few months, we have built great momentum around our company. Thank you all for staying focused on our users, advertisers, and shareholders.
I’m very excited for what lies ahead!

Marissa