Yahoo! today announced plans to sell half of its stake in Alibaba, a Chinese Internet company that specializes in e-commerce, back to the company.
The plan will give Alibaba 20 percent of its diluted stock back, a figure that represents half of Yahoo!'s current stake in the company. Alibaba's repurchase of its stock will provide Yahoo! with an estimated $7.1 billion, at least $6.3 billion of which will come in the form of cash. The additional $800 million will come in the form of newly-issues preferred stock in the Chinese company. As part of the agreement, Yahoo! has been provided with a framework to sell its remaining stake in Alibaba in stages, described as follows:
First, at the time of an initial public offering (IPO) of Alibaba in the future, 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. Second, following such an IPO, Yahoo! has registration rights and rights to marketing support from Alibaba to enable Yahoo! to dispose of its remaining shares, at times of Yahoo!'s choosing following a customary lock-up period.
In addition to the share repurchase, the two companies have also altered licensing agreements. As part of the deal, Alibaba will be given a transitional license which allows it to continue to run Yahoo! China for up to an additional four years. Alibaba will also provide Yahoo! with an upfront $550 million lump sum royalty payment; the company will continue royalty payments for an additional four years.
Yahoo! has found itself in trouble recently, as the struggling company's CEO, Scott Thompson, was forced to resign due to false information on his resume. News later broke that Thompson was informed by doctors that he has thyroid cancer, altough it's unclear what, if any, effect this had on the former executive's resignation.
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