Yahoo and Alibaba Agree on Plan for Alibaba Stake
Confirming earlier reports, Alibaba is buying back up to half of a 40 percent stake in his Alibaba Group from Yahoo for $7.1 billion, in a deal that moves the Chinese e-commerce leader closer to a public listing.
Yahoo and Alibaba Group Holding Limited today announced they have entered into a definitive agreement for a staged and comprehensive value realization plan for Yahoo's stake in Alibaba.
The first step is the repurchase by Alibaba of up to one-half of Yahoo's stake, or approximately 20% of Alibaba's fully-diluted shares. The purchase price will be based on a valuation of Alibaba to be established through equity financings that Alibaba intends to undertake to finance the transaction, subject to a floor valuation of approximately US$35 billion. The agreement includes substantial financial incentives for Alibaba to raise the additional equity at a valuation higher than US$35 billion. At the minimum price and assuming the initial repurchase of the full 20% stake, Yahoo would receive from Alibaba consideration of approximately US$7.1 billion, composed of at least US$6.3 billion in cash proceeds and up to US$800 million in newly-issued Alibaba preferred stock.
The agreement also establishes a framework for Yahoo to monetize its remaining interest in Alibaba in stages. 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.
This agreement is a result of extensive discussions between the two parties. Yahoo and Alibaba believe this agreement to be the best path to align incentives and maximize value for shareholders of both companies and it paves the way for Alibaba to achieve future public market liquidity for all of Alibaba's shareholders. For Yahoo, the agreement provides for a staged exit over time, balancing near-term liquidity and return of cash to shareholders with the opportunity to participate in future value appreciation of Alibaba.
"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. "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."
In addition to the share repurchase, the companies have also agreed to amend their existing technology and intellectual property licensing agreement. Among other things, this amendment will result in Yahoo granting Alibaba a transitional license to continue to operate Yahoo China under the Yahoo brand for up to four years, while restrictions on Yahoo's ability to make other investments in China will be terminated. Alibaba will make an upfront lump sum royalty payment of US$550 million to Yahoo and continuing royalty payments for up to four years. In addition, Alibaba will license certain patents to Yahoo. Yahoo will continue to be represented on Alibaba's board of directors with the right to appoint one of four existing directors.
The transaction is subject to customary closing conditions. The transaction is expected to close within approximately six months.
The first step is the repurchase by Alibaba of up to one-half of Yahoo's stake, or approximately 20% of Alibaba's fully-diluted shares. The purchase price will be based on a valuation of Alibaba to be established through equity financings that Alibaba intends to undertake to finance the transaction, subject to a floor valuation of approximately US$35 billion. The agreement includes substantial financial incentives for Alibaba to raise the additional equity at a valuation higher than US$35 billion. At the minimum price and assuming the initial repurchase of the full 20% stake, Yahoo would receive from Alibaba consideration of approximately US$7.1 billion, composed of at least US$6.3 billion in cash proceeds and up to US$800 million in newly-issued Alibaba preferred stock.
The agreement also establishes a framework for Yahoo to monetize its remaining interest in Alibaba in stages. 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.
This agreement is a result of extensive discussions between the two parties. Yahoo and Alibaba believe this agreement to be the best path to align incentives and maximize value for shareholders of both companies and it paves the way for Alibaba to achieve future public market liquidity for all of Alibaba's shareholders. For Yahoo, the agreement provides for a staged exit over time, balancing near-term liquidity and return of cash to shareholders with the opportunity to participate in future value appreciation of Alibaba.
"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. "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."
In addition to the share repurchase, the companies have also agreed to amend their existing technology and intellectual property licensing agreement. Among other things, this amendment will result in Yahoo granting Alibaba a transitional license to continue to operate Yahoo China under the Yahoo brand for up to four years, while restrictions on Yahoo's ability to make other investments in China will be terminated. Alibaba will make an upfront lump sum royalty payment of US$550 million to Yahoo and continuing royalty payments for up to four years. In addition, Alibaba will license certain patents to Yahoo. Yahoo will continue to be represented on Alibaba's board of directors with the right to appoint one of four existing directors.
The transaction is subject to customary closing conditions. The transaction is expected to close within approximately six months.
