Alibaba is poised to become one to the highest valued new public companies when it goes public in the coming months. Yahoo! Inc. (NASDAQ:YHOO) has a 24% stake in the ecommerce giant, and trading in Yahoo has essentially become pre-IPO trading in Alibaba.

Alibaba

What will they do with the money?

Yahoo! Inc. (NASDAQ:YHOO) has stated that it will sell at least 9% of its stake in Alibaba securing a boatload of cash while reducing its stake to around 15%. Investors are now looking at what Yahoo’s tax liability will amount to as well as what will Yahoo do with the money. Will it finance another round of “shopping” for Marissa Mayer’s seemingly insatiable appetite for acquisitions, line its coffers, or return money to shareholders?

“Just because you buy Yahoo does not mean that Alibaba cash is going to land in your pocket,” said Colin Gillis, director of research at BGC Partners, in an interview with the Financial Times. “First, they will pay taxes on it. Then, they will probably buy back some shares and consider acquisitions. The chances of a one-time special dividend are slim.”

“The Alibaba stake is a big reason why we do own the stock; once Alibaba becomes public we’ll probably re-evaluate where we think the value is in Yahoo,” said Ryan Jacob of the Jacob Internet Fund which holds a large position in Yahoo! Inc. (NASDAQ:YHOO). “A big question will also be when they come into a lot more cash, they may feel emboldened to make larger deals.” Jacob was clearly speaking of the recent $19 billion purchase of WhatsApp by Facebook.

Alibaba: Softbank’s windfall

Yahoo! Inc. (NASDAQ:YHOO) is not the only company expecting a windfall from Alibaba. Masayoshi Son of Softbank Corp (OTCMKTS:SFTBF) (TYO:9984) is looking at potentially realizing $44 billion from the 36.7% stake it holds in Alibaba. That stake was picked up for $20 million when Alibaba was struggling in 2000.

“I don’t believe Alibaba is being fully appreciated by mainstream investors and slow moving long-only funds who have missed its march higher,” said a large hedge fund manager to the FT on the condition of anonymity. “People are going to dig through the Alibaba filing, realise the value and decide they will not be able to get an allocation from the IPO and thus will decide to buy Yahoo stock immediately to get the benefit.”