Alibaba Ready To Buy Back Yahoo Stake

Aug. 4.08 | About: Yahoo! Inc. (YHOO)

According to reports from Bloomberg, Alibaba.com, China’s largest e-commerce website whose biggest shareholder is Yahoo! Inc (NASDAQ:YHOO), is willing to exchange Yahoo’s 39% stake in Alibaba Group for cash.

The Chinese firm that took over Yahoo’s China operations in 2005 and has been reorganizing it since seems ready to do a deal. Alibaba Chairman Jack Ma said today at a briefing in Hangzhou, where the company is based “we are very well prepared”. He added that Alibaba Chief Financial Officer Joseph Tsai “is spending most of his time evaluating the situation”. However, no specific details were provided.

Yahoo last month, faced with a proxy battle from billionaire investor and corporate agitator Carl Icahn (who was calling for a shakeup of the firm’s board), said that it will consider a sale of its assets in Asia to increase shareholder returns. In a letter sent to its shareholders, Yahoo said that the company was exploring ways to “unlock value and return value” to them, such as unlocking the value of its Asian assets.

Those Asian assets certainly include a 39 percent stake in Alibaba and 33.4 percent of Japan’s Softbank which has been one of the earliest investors in Alibaba. Its founder, Masyoshi Son, invested $18 million in the company in 2000 and also participated in subsequent rounds of financing:

It would be very positive for Alibaba if they buy Yahoo’s stake,” Eric Wen, an analyst at MainFirst Bank AG in Hong Kong, said before the briefing. “The biggest benefit of Alibaba’s management having more control is that they’d also have more incentive to improve the company’s performance, said Wen. [Via Bloomberg]

On August of 2005 Alibaba obtained a $1 billion investment from Yahoo as well as the exclusive right of using the Yahoo brand. The package of Yahoo China’s assets included Yahoo’s search technology, the Yahoo China website and its communication and advertising business. Under this contract, Alibaba also preserves the right to buy Yahoo’s stake if the company were to be taken over. In return, Yahoo took 39 percent of Alibaba’s shares while holding 35 percent of voting rights in the company.

Alibaba’s IPO was listed in the Hong Kong Stock Exchange on November 5, 2007, raising $1.5 billion in the second-largest initial public offering sale of an Internet company after Google Inc., (NASDAQ:GOOG).