Yahoo closes Alibaba deal, will dole out $3.65 billion

Yahoo Inc. has begun to cash out a large chunk of its considerable stake in Chinese Internet concern Alibaba Group Holding Ltd., rewarding shareholders in the U.S. firm and accumulating strategic cash with the long-anticipated move.

Alibaba said Tuesday it completed an initial repurchase of about half of Yahoo's 40% stake, netting Yahoo about $4.3 billion after taxes and fees.

Yahoo said it would return about $3.65 billion of that amount to shareholders, contrary to recent speculation that it might use the sizable proceeds to make acquisitions or take other strategic action.

Under terms of the deal, Yahoo is receiving about $6.3 billion in cash, $800 million in preferred stock in Alibaba and $550 million as a result of amending the firms' technology and intellectual-property licensing agreement.

Alibaba said it has the right to repurchase half of Yahoo's remaining stake.

Yahoo, based in Sunnyvale, Calif., paid $1 billion for its Alibaba stake in 2005, an investment widely hailed in subsequent years as a sound bet on growth in what is now the world's largest Internet market.

Since then, however, Yahoo has been roiled by years of struggles to compete with peers such as Google Inc. GOOG +1.17%and younger companies like Facebook Inc., FB +1.60%amid ongoing turnover in its top executive ranks.

As Yahoo's share price has remained stagnant, many investors and analysts covering the company have pressed it to cash out its Alibaba stake so that it can provide more of a return to its backers.

Shares of Yahoo rose 1.4% to $15.91 Tuesday in Nasdaq Stock Market trading.

After Yahoo reached a deal in May to sell part of the Alibaba stake, it signaled that it intended to return proceeds to shareholders.

But following the hiring of former Google executive Marissa Mayer as chief executive in July, Yahoo disclosed in a regulatory filing that it was undertaking a review that could change its plans for returning those proceeds to shareholders, among other elements of its business.

After the Alibaba sale, Yahoo will be left with about $650 million in cash on top of the $1.5 billion in cash it reported on its balance sheet as of the end of June.

"This yields a substantial return for investors while retaining a meaningful amount of capital within the company to invest in future growth," Ms. Mayer said in a press release.

A Yahoo spokeswoman didn't respond to a request for comment.

Alibaba's deal with Yahoo valued the Chinese e-commerce company, which includes Alibaba.com, payment service Alipay and other properties, at about $40 billion.

Yahoo says it retains about a 23% stake in Alibaba, following the transaction announced Tuesday.

The deal was financed by a consortium of foreign investors along with Chinese investors China Development Bank and China Investment Corp.

China Development Bank provided debt financing of $1 billion, while another $1 billion in debt was provided by a consortium of banks including Australia & New Zealand Banking Group Ltd., Barclays Bank, Citigroup Inc., Credit Suisse Group AG, DBS Bank, Deutsche Bank AG, Mizuho Corporate Bank and Morgan Stanley.

(Published by WSJ - September 18, 2012)