Yahoo! and Alibaba Group Holding Limited entered into a definitive agreement to sell Yahoo!'s stake in Alibaba worth $7.1 billion.
The agreement will first give Chinese e-commerce firm Alibaba back to the company one-half of Yahoo!'s stake, or "approximately 20% of Alibaba's fully-diluted shares." Yahoo currently holds a 40 percent stake in Alibaba, and this 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.
"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! (who took the reins as interim CEO, following the departure of Scott Thompson under embellishing his resume).
As part of the agreement, Yahoo has been provided with a framework 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."
In addition to the share repurchase, the companies have also agreed to amend their existing technology and intellectual property licensing agreement. "Yahoo! will be 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!. Upon closing of the repurchase transaction, Yahoo! will continue to be represented on Alibaba's board of directors with the right to appoint one of four existing directors.