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Alibaba v Yahoo faceoff ends in happy ever after

posted 21 May 2012, 07:31 by Sam Mbale   [ updated 21 May 2012, 07:31 ]
Chinese Internet entrepreneur Jack Ma is buying back up to half of a 40 percent stake in his Alibaba Group from Yahoo for 7.1 billion U.S. dollars, in a deal that moves the Chinese e-commerce leader closer to a public listing.

BEIJING, CHINA  (REUTERS) - Alibaba has finally reached a truce with Yahoo after the Chinese e-commerce giant is buying back up to half of a 40 percent stake from the U.S. internet group for 7.1 billion U.S. dollars, in a deal that moves the Alibaba closer to a public listing.

According to a joint statement released on Monday (May 21), Yahoo will sell half its stake in Alibaba for at least 6.3 billion U.S. dollars in cash and up to 800 million U.S. dollars in new Alibaba preferred stock.

The deal caps years of often acrimonious talks over how Alibaba could reclaim some or all of the 40 percent stake that Yahoo bought for about one billion U.S. dollars in 2005.

Alibaba founder Ma had a strong personal rapport with the Yahoo's co-founder who led the initial investment in Alibaba, Jerry Yang. But ties between the two firms soured when Yang was ousted and replaced as CEO by Carol Bartz.

Relations were also complicated by a spat over the Chinese group's payment unit Alipay, and Yahoo's attempt to appoint more directors at Alibaba. Negotiations over a complex deal for Ma, who owns close to 7.5 percent of Alibaba, to buy back most of the Yahoo stake for up to 9 billion U.S. dollars faltered earlier this year over valuation.

Yahoo, which has come under fire from shareholders for failing to take aggressive action to reverse a decline in advertising revenue in the face of competition from Google Inc. and Facebook, will hand most of the sale proceeds, after tax, to its stockholders.

A source familiar with the deal said Yahoo built in incentives for Alibaba, which operates the popular Chinese online marketplace Taobao, to hold an initial public offering by end-2015.

Jin Yoon, analyst of Hong Kong-based Nomura Securities, said Alibaba would take more similar steps in near future to move closer to a possible IPO.

"We do think that this is the first path to a possible IPO. Our checks suggested that an IPO for Alibaba Group would not have been possible given the shareholder structure where it was. But certainly this is the first step towards that, and we think that that's something that we could see happening over the next twelve to eighteen months," he said.

Alibaba said it would raise the money through a mix of cash, debt and equity. Sources said the group was in talks with existing shareholders including Singapore state investor Temasek Holdings to raise about 2.3 billion U.S. dollars in equity to part-finance the deal. Alibaba was not immediately available to comment and a Temasek spokesman declined to comment.

Alibaba would buy back half of Yahoo's remaining stake-a 10 percent holding-at the IPO price or allow Yahoo to sell those shares in the offering before the end of 2015.

Alibaba Group, valued at 30-35 billion U.S. dollars, listed its unit in 2007, and in February agreed to buy it out, with Ma saying a group IPO would reward employees for their service.

Ma's company has long been the dominant player in China's booming e-commerce sector, but the landscape in the world's biggest Internet market is evolving, with, Dangdang and 360buy emerging as tough competitors.