In just over a week since Yahoo ousted CEO Scott Thompson for padding his resume, the search engine giant announced that it would sell half of its 40% stake in Alibaba Group Holding Ltd. with the possibility of selling the rest at some point.
Yahoo will receive at least $6.3 billion in cash and as much as $800 million in newly issued Alibaba preferred stock, the companies said in a statement yesterday (Monday). At the time of an IPO, Alibaba will be required to either buy back a quarter of Yahoo's current stake or let Yahoo sell the shares.
In the announcement, Yahoo also said it would use all of the sale's after-tax proceeds to repurchase its own shares, with the Yahoo board already having approved a $5 billion increase to the firm's current buyback program.
The sale, strongly encouraged by analysts and investors, frees up some cash for Yahoo. Many have been waiting for this deal to come through as talks repeatedly failed over the past year between Yahoo's ex-CEO Carol Bartz and Alibaba.
Some calculations suggest Yahoo may have let go of Alibaba at a steep discount. But a person familiar with the deal said there were provisions which would allow Yahoo to benefit if Alibaba is valued at more than $35 billion when it sets the pricing for its IPO.
Furthermore, the move had to be made, and was one of five things that Money Morning's Keith Fitz-Gerald said he would do if he ran Yahoo.