Yahoo Inc. and Alibaba Group Holding Ltd. announced a complicated agreement that will go from Yahoo owning about 40 percent of Alibaba, the way it is now, through several stages until the two companies eventually go their separate ways.

It begins with Alibaba paying Yahoo $550 million upfront and continuing to pay unspecified royalities for four years, during which time Alibaba will continue to operate Yahoo China.

At the same time, Alibaba will repurchase up to half of Yahoo’s holdings. The price hasn’t been settled yet, but it will be at least $7.1 billion, of which $6.3 billion would be in cash and the rest in newly-issued Alibaba preferred stock. The final price depends on what equity finance determines Alibaba to be worth – it has a floor valuation of $35 billion – and other factors related to how Alibaba finances the transaction.

The next step kicks in after Alibaba’s future initial public offering. Alibaba will be required either to repurchase one-quarter of Yahoo’s current stake at the IPO price or allow Yahoo to sell those shares in the IPO, transactions the Chinese company would help with.

“Substantially all” of the after-tax cash proceeds from the deal will be distributed to Yahoo shareholders, according to Timothy R. Morse, executive vice president and chief financial officer of Yahoo.

“This transaction opens a new chapter in our relationship with Yahoo,” said Jack Ma, chairman and chief executive officer of Alibaba Group (pictured, on right). “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.”

“Today’s agreement provides clarity for our shareholders on a substantial component of Yahoo’s value and reaffirms the significance of our relationship with Alibaba,” said Ross Levinsohn, interim CEO of Yahoo (pictured, on left). “We look forward to continued collaboration with the Alibaba team on business initiatives as we explore joint opportunities for growth and benefit from Alibaba’s future. I want to thank Jack Ma, Joe Tsai and the Alibaba team, as well as Tim Morse, Michael Callahan and our Yahoo team for their dedication in achieving this successful outcome.”

Related links:

Yahoo and Alibaba Group – press release

Yahoo – corporate site

Alibaba Group – corporate site

Forbes – At Long Last, Yahoo Sets Plan To Unload Alibaba Group Stake

Bloomberg – Alibaba Buys Back 20% Stake From Yahoo for $7 Billion

Reuters – Alibaba buys back 20 percent stake held by Yahoo for $7.1 billion

International Business Times – Big Deal For Alibaba,Yahoo: The $7.1B Is Only Half Of It

Forbes – China Internet Billionaire Jack Ma’s Wealth Steady Under Yahoo Deal


Alibaba Yahoo Transaction Presentation Final