Yahoo (NASDAQ:YHOO) is close to putting together a deal to monetize its 40% stake in Alibaba, according to a report from AllThingsD, and the news has sent YHOO shares up about 6%.
The deal has been tough to reach because of the potential tax bite. Meanwhile, Alibaba’s CEO Jack Ma has proven to be a shrewd negotiator, and Yahoo has had to deal with the departure of CEO Scott Thompson thanks to a resume flub.
The terms of the Yahoo-Alibaba deal are complex. Yahoo will sell half its stake for $7 billion to Alibaba and pay taxes on it, according to AllThingsD. Yahoo will use the remaining funds to buy back its shares, or potentially issue a one-time dividend.
Meanwhile, there will be a contract that will compel Alibaba to file for an IPO, such as by indicating a deadline. Once there is an offering, Yahoo will sell more shares, leaving the company with a 10% stake. From there, the Yahoo likely will continue to unload its holdings.
The deal still could fall apart, but in light of the intricate details of the proposed transaction, it sounds like the parties are close to an agreement, and an announcement could come as soon as Monday.
Update: Yahoo finalized a deal to sell up to half its interest in Alibaba for $7.1 billion, which will be a taxable transaction. Yahoo is expected to net $4 billion. After this, Alibaba will make plans to go public and the company will have the right to buy up to half the remaining equity interest at the offering price.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.
