ALIBABA GROUP has bought back 20 per cent of its stock from Yahoo in a deal that values the Chinese ecommerce group at more than $40 billion (€30.7 billion).

Alibaba, valued at $2.5 billion when Yahoo first invested in 2005, is now worth more than twice as much as the struggling US internet company. After agreeing a deal in May that Yahoo would sell half of its 40 per cent stake, Alibaba has paid the US group $7.6 billion, paying with debt and equity raised from investors and its own cash.

Sovereign wealth fund China Investment Corporation led the equity portion of the financing, which comprised about $3.9 billion of the total raised. The completion of the repurchase paves the way for an initial public offering by Alibaba, at which point it can buy back Yahoo’s remaining stake. The transaction sees Yahoo receive $6.3 billion in cash and $800 million in Alibaba preference shares, plus another $550 million to amend the companies’ technology and patent licensing agreement.

Alibaba chairman and chief executive Jack Ma said the deal “begins a new chapter” in the relationship between the two groups, which began when Yahoo co-founder Jerry Yang invested $1 billion seven years ago.

Marissa Mayer, who took over as Yahoo chief executive in July, is considering whether to return $5 billion of the proceeds to shareholders, as her predecessor had promised, or to use it for acquisitions or restructuring.

Alibaba said its equity financing was completed at a valuation of about $40 billion. – Copyright the Financial Times Limited 2012