Alibaba to buy back half of Yahoo's 40% stake

CHINESE INTERNET entrepreneur Jack Ma’s Alibaba Group is buying back up to half of Yahoo’s 40 per cent stake for $7.1 billion in a deal that moves the Chinese e-commerce leader closer to a public listing.

Under the agreement, Yahoo will sell one-half of its stake in Alibaba for at least $6.3 billion in cash and up to $800 million in new Alibaba preferred stock. The deal, announced yesterday, caps years of often-acrimonious talks between Alibaba and Yahoo over how the Chinese company could reclaim some or all of the stake that Yahoo bought for about $1 billion in 2005.

Investors pushed up Yahoo shares as much as 3.8 per cent after the news even though the reaction was tempered by a big tax bill and questions about Yahoo’s core business, which has been losing ground to Google and other rivals. After tax, the proceeds for the deal will be $4.2 billion, according to Yahoo.

“It’s better to show a path to monetisation rather than wait for tax efficiency if that was proving too difficult to achieve,” said Ronald Josey, an analyst at Thinkequity.

Now that the deal has resolved a major distraction for Yahoo shareholders, they may put even more pressure on management to solve problems in the core business, such as the decline in advertising revenue, Mr Josey said.

Yahoo has been trying for some time to cash in on its Alibaba investment but its efforts have been hurt by management turmoil. While Ma had a strong rapport with Jerry Yang, the Yahoo co-founder who led the initial investment in Alibaba, ties between the two companies soured when Mr Yang was ousted and replaced as chief executive by Carol Bartz, who left last year.

Talks over a deal for Ma, who owns nearly 7.5 per cent of Alibaba, to buy back most of the Yahoo stake for up to $9 billion faltered earlier this year over valuation. Alibaba has long been the dominant player in Chinas booming e-commerce sector, but the landscape in the worlds biggest Internet market is evolving, with Amazon.com, Dangdang and 360buy emerging as tough competitors. The deal was finally announced just days after yet another management revamp at Yahoo. – (Reuters)