Alibaba Group Holding Ltd, China’s largest e-commerce company, has agreed to repurchase a 20% stake in itself from US web portal Yahoo for €5.6m ahead of a potential initial public offering.
Yahoo will receive at least €5bn in cash and as much as €630m in newly issued Alibaba preferred stock, the companies said.
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. The deal values Alibaba at about €27.5bn.
Alibaba chief executive Jack Ma may ready an IPO following the success of last week’s offering by Facebook and projected 42% growth this year in China’s online shopping industry. Ma owns about 7.4% of Alibaba Group, making his stake worth $2.6bn (€2bn).
“The transaction will establish a balanced ownership structure that enables Alibaba to take our business to the next level as a public company in the future,” Ma said.
Yahoo acquired a 40% stake in Alibaba in 2005 in exchange for $1bn and ownership of Yahoo’s Chinese operations. At the time, Yahoo had a market capitalisation of $49.2bn, according to Bloomberg. Its market value of $18.8bn on May 18 is about half the value placed on Alibaba in the deal.
Alibaba’s revenue rose to $2.3bn in the year ended Sept 30 from $1.3bn a year earlier, according to Yahoo’s annual report in February. The Chinese company posted a profit of $268m, compared with a loss of $10.7m a year earlier.
“As e-commerce in China continues to grow, Alibaba is a very attractive asset,” said Duncan Clark, chairman at BDA China in Beijing, which advises technology companies.
“Alibaba is in a better position now to do an IPO. The competitive pressures are increasing, and the need to reward staff and make acquisitions means it’s helpful for them to list.”
Alibaba has been trying to buy back the stake for more than a year and stepped up efforts in September because of improving prospects for growth and expansion beyond China.
While the deal reduces Yahoo’s presence in China, the world’s largest internet market, it may aid turnaround efforts as it competes with Google and Facebook for users and advertising money.
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