|By Maureen O'Gara||
|May 22, 2012 01:15 AM EDT||
Yahoo Sunday finally cut a deal with Alibaba Group Holdings Ltd.
It's 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.
The companies have been trying to negotiate a deal for the last two year through four Yahoo CEOs, whichever way you count.
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.
Yahoo bought its stake in Alibaba in 2005 for $1 billion. If Yahoo had only been as astute in valuing Microsoft's $47.5 billion acquisition offer four years ago. Microsoft offered $33 a share for Yahoo, which hasn't seen the upside of 20 bucks a share since.
Alibaba represents a hefty piece of the US company's $19 billion market cap.
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.
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 "substantially all" of that to shareholders. The deal is expected to close in the six months.
Alibaba runs Alibaba.com, its core B2B site, as well as two of China's biggest online shopping sites Taobao and Tmall, the first for small merchants and second for established brands.
One of its biggest problems is logistics, which basically stink in China. Payments are also a problem, according to Bloomberg, and it's facing share-eating competition. Being Chinese, counterfeit goods are a constant issue.
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't license an electronic payment service that wasn't entirely Chinese-owned. It eventually made some restitution. It's believed Alibaba may want to expand its payments position.
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.
Yahoo will be able to make other investments in China if it chooses. Yahoo and Alibaba are also reportedly talking about strategic initiatives.
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