Sunnyvale, California -- Yahoo Inc.'s board of directors are busy exploring possibilities of trimming down its 40 percent stake in Chinese e-commerce company Alibaba Group Holding Ltd. to about 15 percent and dispose of its 35% ownership position in Yahoo Japan, in a complex deal estimated at $17 billion, The Wall Street Journal reported on Friday.
The company's board of directors agreed to move ahead with negotiations related to the deal on Friday. The deal, which might allow Alibaba repurchase the stake in a tax-free manner, estimates Yahoo's 40% stake in Alibaba at about $12 billion and its 35% stake in Yahoo Japan at about $5 billion. Hence, the total value of the sale for the Asian assets is evaluated at $17 billion to $18 billion, the Journal reported, citing anonymous sources.
Yahoo! Inc. and Alibaba Group Holding LTD.'s website is display on a computer monitor for a photograph in New York, U.S., on Thursday, Dec. 1, 2011.Photographer: Jin Lee/Bloomberg
Dana Lengkeek, a spokeswoman for Yahoo, and Alibaba spokesman John Spelich declined to comment.
Despite being one of the biggest brand names, Yahoo has not done very well in the last few years. The Internet pioneer has constantly been battered by user attrition and losses of search market share to struggled to Google Inc, Facebook and other fast-growing rivals, is also not eliminating the possibility of a separate investment proposals by private equity firms seeking to buy minority stakes, according to people briefed on the matter.
“Yahoo is probably more resolute to find a solution to this,” said Paul Wuh, the head of internet research at Samsung Securities. “They obviously changed their chief executive, which makes it a bit easier now.”
Alibaba intensified its efforts to repurchase the stake after Yahoo, which dismissed its Chief Executive Carol Bartz in September, who was against the sale, has been undergoing a 'strategic review' to infuse growth in its business.
However, if directors sanction the plan, they may also dismiss a separate investment proposals by Silver Lake and TPG Capital that may have given control of the company to the private equity firms and Yahoo's management, said a number of these individuals, who, just like the others contacted for this text, spoke on condition of anonymity.
At this extremely critical moment, Yahoo needs to re-evaluate its operations strategically in order to reward its shareholders and focus on its core Internet advertising business. The most positive aspect of the announcement is the transparency in value of its Asian assets, which has been questioned by some.
By trimming down its investments in Asia -- which many investors had considered the company's crown jewels -- Yahoo would get a big capital infusion at a time when it was striving to revive its core United States operations, which have long suffered from declining revenue and an exodus of senior employees.
Besides, the company has been pretty unsuccessful to keep up with the surging popularity of Internet rivals like Google, Microsoft and Facebook, it still runs one of the most popular portals on the Web, with more than 113 million users a month. Also, the proposed transaction would allow Yahoo to return some cash to shareholders in the form of Yahoo's first dividend or a stock buyback.
Yahoo acquired its stake in Alibaba, based in Hangzhou, eastern China, for about $1bn in 2005. Alibaba is China’s biggest e-commerce firm. Moving forward, Alibaba and Yahoo Japan would each formulate an independent legal entities where they would put cash and certain, yet-to-be-determined operating assets, and then trade those with Yahoo, making the deal tax-free, the sources said.
Yahoo shareholders have appreciated the proposed plan, sending shares of Yahoo up nearly 6 percent earlier this week when news surfaced that the plan was under consideration. Still, two of these people informed that no outcome was certain because the board had been divided on several issues throughout the process, including Yahoo’s identity and how it should operate in the future.
Spokesmen for Yahoo and Alibaba declined to comment.