Yahoo Selling Back 20% Of Its Alibaba Stake, Will Net $7.1 Billion

Alibaba founder Jack Ma is finally getting his way as Yahoo announced on Sunday that it will sell 20% of its 40% stake in the company back to Alibaba, a sale that will net the Silicon Valley company $7.1 billion.

According to Yahoo and Alibaba the shares will be valued based on the following formula:

“The purchase price will be based on a valuation of Alibaba to be established through equity financings that Alibaba intends to undertake to finance the transaction, subject to a floor valuation of approximately US$35 billion.”

Under the deal Yahoo will also have a future option to sell off an additional 10% to the company at the same IPO pricing structure.

While Yahoo is thinning out its Alibaba holdings the two companies are expected to continue their work together with Alibaba still operating Yahoo! China which was acquired in October 2005. Alibaba will have the rights to use the Yahoo! brand for up to four years while paying Yahoo! royalty payments for the use of the name.

In the meantime Alibaba is expected to earn money from Yahoo by licensing out various patents to Yahoo for current and future use.

Jack Ma recently said at AsiaD that he would still like to ultimately buy all of Yahoo’s operations. Purchasing back 20% of Alibaba’s operations could signal the first signs of a Yahoo takeover. In speaking of the buyback Jack Ma wrote:

“This transaction opens a new chapter in our relationship with Yahoo! I look forward to working with Ross Levinsohn and the Yahoo! team as Alibaba builds China’s leading e-commerce company. Yahoo!’s global audience reach will provide attractive partnership opportunities for Alibaba to explore markets outside of China. 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.”

Speaking from an investor standpoint Yahoo! Executive Vice President and Chief Financial Officer told Timothy R. Morse revealed:

“We look forward to delivering the proceeds of the near-term transaction to our shareholders, and to the further enhancement of value and the additional monetization in the future that this agreement enables.”