Yahoo Shareholders In For a Windfall – Thanks To the Buyback by Alibaba

Yahoo shareholders are in for a windfall this season. Alibaba, China’s e-commerce giant, has recently announced that it has just completed a successful buyback of half of Yahoo’s assets. The deal is worth $7.6 billion.

Yahoo board members have taken a decision with regard to the proceeds, and have decided that they will be returning $3 billion to its shareholders. This is in addition to the substantial $646 million it received as down payment for the deal. Yahoo’s CEO Marissa Mayer said that they were more than happy to return almost half of the monies, while still retaining a substantial amount as capital reserves for future growth.

Business Insider leaked a memo by Ms Mayer, meant for staff of Yahoo. The memo states that this is a bonanza for Yahoo shareholders and will increase liquidity for shareholders. Ms Mayer is confident that since Yahoo still holds 23 percent of Alibaba’s common stock Yahoo shareholders will further benefit as and when Alibaba’s IPO hits the market.

Shareholders of Yahoo are going to receive almost 85 percent of the net proceeds from this buyback by Alibaba. However, it is still not clear whether the shareholders will receive cash in the form of dividends or buybacks or a combination of both.

If you remember it was three months back, in May 2012, Alibaba and Yahoo decided to reduce Yahoo’s holding in Alibaba. This buyback is in line with that decision to restructure the relationship between the two giants. Yahoo earlier had 40 percent stake in Alibaba. Half of which was valued at $7.1billion of which $6.3 billion was given to Yahoo in cash and the remaining $800 million in the form of preference shares in the Alibaba group. This still leaves Yahoo with a 23 percent stake in Alibaba, valued at approximately $8.9 billion.

The agreement reached by Yahoo and Alibaba states that Alibaba will buy back the remaining half of Yahoo stake in case of a IPO and thereafter whatever shares Yahoo owns, it will be free to sell them in the market after the mandatory lock-up period.

The chairman of Alibaba group has thanked Yahoo for the support and attributed Alibaba’s growth to Yahoo’s strong support over all these years. The chairman is confident that Alibaba will continue to increase shareholder value, Yahoo included, in the years ahead. Mr. Jack Ma, chairman of Alibaba, hoped to work closely with Ms. Mayer and her team to further propel Alibaba.

As for Ms. Mayer she will be hoping to end the game of musical chairs that has been happening in the top echelons at Yahoo for the last few years. She personally stands to gain more than $100 million if she sticks around for the next five years.

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