Alibaba to Raise $8B in Effort to Buyback Yahoo Stake


Alibaba to Raise $8B in Effort to Buyback Yahoo Stake

Evelyn M. Rusli, and Michael J. De La Merced, of the New York Times, report that Limited (HKG:1688), a Chinese e-commerce site, plans to raise $8 billion of money from private investors. Currently, 40% of Alibaba is owned by American internet giant, Yahoo. Limited (HKG:1688) plans to use its financing to purchase back half of Yahoo’s shares for a total of $7.1 billion.

Ross Levinsohn is one of the top executives from Yahoo! Inc. (NASDAQ:YHOO) who signed off on this deal, and he announced, just yesterday, that he would be leaving Yahoo. Levinsohn had served as the interim CEO for Yahoo, ever since the former CEO was removed from the position for having falsified college records on his resumé. Levinsohn was passed up for the top position a earlier this month when Yahoo announced, they had stolen Marissa Mayer from their rival, Google.

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With its investor financing finally in place, Alibaba is preparing to take a a big step away from Yahoo, and stake its claim as the most valuable privately held company in the Internet field. Yahoo has been struggling of late, hoping to revive its once top ranked brand and also increase its share price.

While Alibaba agreed to pay more than the $7.1 billion dollars to Yahoo, if it was able to raise more than was previously thought, the sale of preferred shares at a discounted price have held the amount down. It is believed that they will pay close to the agreed price.

Alibaba’s relationship with Yahoo has been rocky in recent years, stemming mainly from arguments about the online payment business called Alipay. Yahoo claims that they weren’t properly consulted before Alibaba initiated Aliplay, and the two companies have clashed over the issue. Limited (HKG:1688) has been trying to separate itself from Yahoo! Inc. (NASDAQ:YHOO) for quite some time, and at one point, even threatened a hostile takeover to prevent Yahoo from selling off a minority stake to investors. They have tried multiple times, to purchase back Yahoo’s stake in the company, but negotiations always fell apart before the deal was closed.

Dan Loeb, the famous value hedge fund manager of Third Point LLC, and largest Yahoo! Inc. shareholder, has called Alibaba ‘the Crown Jewel’ of Yahoo!

The amazingly fast flight of Alibaba, from a small e-commerce company, to a giant icon of Internet trade, is a great illustration of how rapidly Internet marketing can change. Alibaba reported only $68 million in revenue, in 2004, just prior to Yahoo purchasing into the company. In the first half of 2012, Alibaba has reported almost $2 billion in revenue. That is an amazing growth rate, even by Internet standards.

In a sharp contrast, Yahoo has dropped value in the analysts’ eyes. Their stock and advertising revenue has fallen drastically in recent years, and many wonder if the new CEO, Marissa Mayers can truly save the company.

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