Yahoo Inc. is primed to cash in on up to half of its 40% stake in China-based e-commerce powerhouse Alibaba Group Holding Ltd. Under a share buy-back deal announced yesterday, Alibaba will repurchase up to half of Yahoo’s shares for about $7.1 billion, including at least $6.3 billion in cash and up to $800 million in newly issued Alibaba stock.
Alibaba’s purchase of Yahoo’s stock will be based on a valuation of Alibaba of about $35 billion, the companies said.
For Yahoo, which paid $1 billion for its 40% share of Alibaba in 2005, the deal would provide it with a boost in capital at a time when it is seeking to provide better online advertising and e-commerce opportunities for companies that advertise on its web sites. Yahoo has also said it plans to improve its mobile commerce offerings and the e-commerce technology it provides to retailers though its Yahoo Small Business unit, which includes Yahoo Merchant Solutions.
At the same time, the deal would leave Yahoo with at least a 10% stake in Alibaba, a company that dominates China’s burgeoning e-commerce market.
Alibaba’s Taobao e-marketplace, China’s version of eBay.com, had 2010 online sales of 30 billion yuan (US$4.7 billion). Online retail sales in China reached nearly $50 billion in 2010, according to Forrester Research Inc. That amount was about 30% of 2010 U.S. web sales of $165.4 billion, according to the U.S. Department of Commerce. Moreover, Forrester projects a compound annual growth rate of nearly 27% for China’s online sales between 2010 and 2015.
Alibaba’s holdings also include the trading portal Alibaba.com, where retailers from the United States and around the world find and purchase goods and services from China-based suppliers. Alibaba.com says the United States ranks as the top country in terms of buyers on its site, with 4.2 million registered buyers as of December 2011, up 45% from a year earlier. An average of 109,000 U.S. buyers looking for supplies or products for their companies joined the global trade marketplace each month in 2011 and the United States accounts for 17% of all Alibaba.com buyers, the company says.
The Yahoo-Alibaba deal, which the companies said is expected to close within six months, also calls for Alibaba to either purchase another quarter of Yahoo’s current 40% stake at the time of an Alibaba initial public offering of stock, for which Alibaba has not yet announced plans, or allow Yahoo to sell those shares in the IPO. Yahoo would also have the option to sell its remaining Alibaba shares after the IPO, with marketing support from the Chinese company.
“We look forward to continued collaboration with the Alibaba team on the business initiatives as we explore joint opportunities for growth and benefit from Alibaba’s future,” says Ross Levinsohn, who was recently named interim CEO of Yahoo, following the sudden departure of Scott Thompson.
“The deal is as much about unlocking unrealized value for Yahoo, and giving Alibaba more control over its destiny, as it is about opportunities for e-commerce in China,” says Colin Sebastian, senior research analyst, Internet and interactive entertainment, at investment banking firm Robert W. Baird & Co. “That said, China will ultimately be the world’s single largest online retail market and these two companies working cooperatively should be positive for Alibaba.”
International markets will be addressed at the Internet Retailer 2012 Conference &
Exhibition next month by special guest speaker Fareed Zakaria in a presentation titled “How e-commerce is poised to lead the global economy.” In another session at the conference, Michael Ober, director of merchant development, Yahoo Merchant Solutions, will speak in a session titled “10 ways to improve ROI.”