Yahoo has at last struck a deal to sell up to half its stake in Alibaba Group back to the Chinese ecommerce giant for as much as $7.1 billion in cash and stock.
The announcement Monday comes after months of negotiations on how the two companies might unwind their holdings and follows the tumultuous exit of Yahoo CEO Scott Thompson last weekend and the appointment of Ross Levinsohn as interim CEO.
“Today’s agreement provides clarity for our shareholders on a substantial component of Yahoo’s value and reaffirms the significance of our relationship with Alibaba,” Levinsohn said in a statement Monday.
“We look forward to continued collaboration with the Alibaba team on business initiatives as we explore joint opportunities for growth and benefit from Alibaba’s future,” he added.
The complex deal will unfold in stages. First, Alibaba will buy back at least one third and up to one half of Yahoo’s stake, depending on how much money the Chinese company can raise. Half of Yahoo’s stake in Alibaba reps about 20% of the company, which is headquartered in Hangzhou, China.
The sale will be based on a value of Alibaba to be determined through equity financing needed to fund the deal but is subject to a floor valuation of about $35 billion.
The two companies noted that the agreement includes substantial financial incentives for Alibaba to raise the additional equity at a valuation higher than $35 billion.
At the minimum price, and assuming the initial repurchase of the full 20% stake, Yahoo would receive $7.1 billion made up of $6.3 billion in cash and up to $800 million in newly issued Alibaba preferred stock.
Later, when Alibaba goes public, it must repurchase a fourth of Yahoo’s remaining stake at the initial public offering price or let Yahoo sell those shares in the IPO.
And after the eventual IPO, Yahoo has the right to sell the rest of its Alibaba stock whenever it chooses.
“This transaction opens a new chapter in our relationship with Yahoo,” said Alibaba chairman-CEO Jack Ma. He said Yahoo’s global audience reach will provide attractive partnership opportunities for Alibaba to explore markets outside of China.
“The transaction will establish a balanced ownership structure that enables Alibaba to take our business to the next level as a public company in the future,” Ma said.
The two have also agreed to amend an existing technology and intellectual property licensing agreement. Yahoo is granting Alibaba a transitional license to continue to operate Yahoo China for up to four years, and Yahoo will be allowed to make other investments in China.
Alibaba will make an upfront lump sum royalty payment of $550 million to Yahoo and continue for up to four years. Alibaba will license certain patents to Yahoo.
Yahoo will continue to name one director to the Alibaba board.
Yahoo said it intends to return substantially all of the after-tax cash proceeds to shareholders following the closing of the transaction. To do that, the board boosted Yahoo’s share buyback plan by $5 billion.
The deal is expected to close in six months.