Chinese e-commerce site Alibaba has bought half of Yahoo’s stake in the company — 20 percent of Alibaba’s shares — back from Yahoo for $7.1 billion.
Under the terms of the agreement, Yahoo will sell half its stake in Alibaba for at least $6.3 billion in cash and up to $800 million in new Alibaba preferred stock.
Yahoo had bought a 40 percent in Alibaba for about $1 billion in 2005. Back then Yahoo was still one of the most successful internet companies around, but somewhere around that time Yahoo’s revenue stopped growing, and the company never managed to get back on the right track.
On the other hand, Alibaba has been doing great, with $2.34 billion in revenue in the year ended Sept. 30 and a projected 42 percent growth this year. The success of Facebook’s initial public offering probably encouraged Alibaba to go public, and the stock buyback is a step towards that goal.
“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,” Alibaba Chief Executive Officer Jack Ma said in a statement.
On the other hand, the cash injection is good news for Yahoo which plans to “return substantially all of the after-tax cash proceeds to shareholders.”
In addition to the share repurchasing agreement, Yahoo and Alibaba have amended their existing technology and IP licensing agreement. Under the new terms, Alibaba will make an upfront royalty payment of US$550 million to Yahoo and continuing royalty payments for up to four years.
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