Alibaba Group Holding Ltd. is near an agreement to buy back a 20 percent stake in itself from Yahoo! Inc. (YHOO) for about $7 billion and may announce a deal as soon as today, said a person with knowledge of the matter.
The purchase may pave the way for Alibaba, China’s largest e-commerce provider, to pursue an initial public offering in the next 18 months, said the person, who asked not to be identified because the matter is private. Alibaba, helped by shareholders Temasek Holdings Pte., Digital Sky Technologies, Silver Lake, plans to finance the deal with cash and debt, the person said.
Alibaba has been trying to buy back the stake for more than a year and stepped up efforts in September, when the U.S. company fired then-Chief Executive Officer Carol Bartz. Reducing the stake reduces Yahoo’s presence in China, the world’s largest Internet market, and makes a takeover of the U.S. company more likely, said Jordan Rohan, an analyst at Stifel Nicolaus & Co.
“For Yahoo shareholders, the sale and subsequent march towards an IPO is a clear positive, as many questioned whether Yahoo would be able to monetize its China assets at all,” Rohan said in a research report. “The capital required to take Yahoo private is reduced with each Alibaba monetization event.”
Yahoo has come close to selling the stake in the past and failed and a deal may be postponed, the person said. Yahoo currently owns a 40 percent stake in Alibaba so the current proposal under discussion would cut that holding in half.
Alibaba is not committed to any specific timing on an IPO, which will depend on market conditions, the person said.
The companies struggled to make headway on negotiations under Bartz, who failed to reach an agreement to let Alibaba Group buy back shares in 2010. Yahoo acquired the stake in 2005 in exchange for $1 billion and ownership of Yahoo’s Chinese unit.
Fissures became public by January 2010 when Alibaba Group described as “reckless” Yahoo’s support for Google (GOOG) Inc., which tangled with Chinese authorities over the nation’s Web-censorship rules.
In May of last year, Yahoo’s rift with Alibaba widened after the Web portal said the Chinese company spun off its online payment business without informing shareholders. Yahoo said it wasn’t consulted about the transfer of the Alipay unit to a company mostly owned by Jack Ma, chief executive officer of Alibaba Group.
Yahoo had a board meeting to review the transaction and will consider a dividend payment, AllThingsD reported May 17. The website said the deal is likely to value the portion of Yahoo’s holdings at about $7 billion, or 20 percent of Alibaba’s $35 billion enterprise valuation. After a potential IPO, Yahoo could sell more of its stake, AllThingsD reported.
Dana Lengkeek, a spokeswoman for Yahoo, and John Spelich, a spokesman for Alibaba, declined to comment.
Yahoo, which failed to keep pace with growth at Google and Facebook Inc., is pursuing active discussions with the Chinese company, Scott Thompson, who succeeded Bartz before stepping down this month, said in April.
Yahoo had also been in discussions about selling its stake in Yahoo! Japan to Tokyo-based Softbank Corp. (9984), another person said. Those talks have gone cold over price and have not resumed, said the person.
Yahoo considered a deal with Alibaba and Softbank that would cut its stake in Alibaba to about 15 percent from about 40 percent, a person familiar with the matter said in December.
The shares of Sunnyvale, California-based Yahoo rose 3.7 percent to $15.42 at the close in New York on May 18. The shares have fallen 4.4 percent this year.
Yahoo, which spurned a $47.5 billion offer by Microsoft Corp. in 2008, has a market value of $18.8 billion. By comparison, Google is valued at $195.6 billion.