Yahoo has finally reached an agreement with Alibaba Group for a phased sell off of its stake in China’s biggest internet group, following years of negotiation.
The deal will consist of a first phse, that will see Alibaba buy back half the 40% stake owned by Yahoo for $7.1bn, made up of at least $6.3bn in cash proceeds and up to $800m in newly-issued Alibaba preferred stock.
This would let Alibaba consider an initial public offering (IPO) but requires Alibaba at the time of an IPO to either buy back 25% of Yahoo’s remaining stake or allow Yahoo to sell those shares in the IPO.
After the IPO, a second phase in the agreement lets Yahoo sell all its remaining shares in Alibaba.
Analysts say the agreements points to an IPO for Alibaba in 2015, but the company has made no commitment to any specific timetable.
The deal gives Alibaba a route to independence and Yahoo the means to pay dividends, make acquisitions, or buy back its own shares, as demanded by some shareholders, according to the BBC.
“We look forward to delivering the proceeds of the near-term transaction to our shareholders, and to the further enhancement of value and the additional monetization in the future that this agreement enables,” Tim Morse, chief financial officer at Yahoo said in a statement.
Alibaba has long sought to buy back Yahoo’s stake in the company, but negotiations have suffered many setbacks.
“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,” said Jack Ma, chief executive officer of Alibaba Group.
Negotiations for this deal with Alibaba began around the time former Yahoo chief executive Carol Bartz was ousted by the board in September 2011, according to the Financial Times.
Tim Morse, who stepped in as interim CEO, led Yahoo’s negotiations in consultation with a special transaction committee made of Yahoo board members.
Scott Thompson, who served as Yahoo’s chief executive for just three months before leaving when a disgruntled shareholder revealed he had made false claims about his qualifications, was not instrumental to the deal, the FT said, citing people familiar with the negotiations.