Yahoo and Alibaba have announced they have entered into a definitive agreement for a staged and comprehensive value realization plan for Yahoo’s stake in Alibaba. The company has agreed to a deal to sell a significant part of its 20% stake in Alibaba back to the Chinese ecommerce giant.
The purchase price will be based on a valuation of Alibaba to be established through equity financings that Alibaba intends to undertake to finance the transaction, subject to a floor valuation of approximately US$35 billion. The agreement includes substantial financial incentives for Alibaba to raise the additional equity at a valuation higher than US$35 billion.
At the minimum price and assuming the initial repurchase of the full 20% stake, Yahoo would receive from Alibaba consideration of approximately US$7.1 billion, composed of at least US$6.3 billion in cash proceeds and up to US$800 million in newly-issued Alibaba preferred stock.
“This transaction opens a new chapter in our relationship with Yahoo!,” said Jack Ma, Chairman and Chief Executive Officer of Alibaba Group. “I look forward to working with Ross Levinsohn and the Yahoo! team as Alibaba builds China’s leading e-commerce company. Yahoo!’s global audience reach will provide attractive partnership opportunities for Alibaba to explore markets outside of China. 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.”
Other clauses will see Alibaba make a significant upfront royalty payment of more than half a billion dollars: Alibaba will make an upfront lump sum royalty payment of US$550 million to Yahoo! and continuing royalty payments for up to four years. In addition, Alibaba will license certain patents to Yahoo.