(21 May 2012 2:18 pm)

MMUMBAI: Following extensive discussions, Alibaba Group, China's biggest Internet company, has entered into a definitive agreement to repurchase 20 per cent of Yahoo!'s stake in Alibaba for at least $7.1 billion.

Under the agreement, Yahoo! would receive from Alibaba consideration of approximately $7.1 billion, composed of at least $6.3 billion in cash proceeds and up to $800 million in newly-issued Alibaba preferred stock.

The stake repurchase will be financed through a combination of its own cash resources, debt, equity and equity-linked financing. The transaction is expected to close within approximately six months.

The agreement also establishes a framework for Yahoo! to monetise its remaining interest in Alibaba in stages. First, at the time of an initial public offering (IPO) of Alibaba in the future, Alibaba will be required either to repurchase one-quarter of Yahoo!'s current stake at the IPO price or allow Yahoo! to sell those shares in the IPO.

Second, following such an IPO, Yahoo! has registration rights and rights to marketing support from Alibaba to enable Yahoo! to dispose of its remaining shares, at times of Yahoo!'s choosing, following a customary lock-in period.

"Today's agreement provides clarity for our shareholders on a substantial component of Yahoo!'s value and reaffirms the significance of our relationship with Alibaba. We look forward to continued collaboration with the Alibaba team on business initiatives as we explore joint opportunities for growth and benefit from Alibaba's future. I want to thank Jack Ma, Joe Tsai and the Alibaba team, as well as Tim Morse, Michael Callahan and our Yahoo! team for their dedication in achieving this successful outcome," said Yahoo! interim CEO Ross Levinsohn.

In addition to the share repurchase, the companies have also agreed to amend their existing technology and intellectual property licensing agreement.

Among other things, this amendment will result in Yahoo! granting Alibaba a transitional license to continue to operate Yahoo! China under the Yahoo! brand for up to four years, while restrictions on Yahoo!'s ability to make other investments in China will be terminated.