China-based Alibaba Group Holding Ltd. and U.S.-based Yahoo Inc. (Nasdaq: YHOO) confirmed Sunday night they have reached a definitive agreement with multiple stages that will allow the two online media giants to eventually go their own ways.
The first stage will have Alibaba pay an estimated $7.1 billion in cash and preferred stock to Yahoo.
With Yahoo currently owning about 40 percent of Alibaba, this first stage centers on Alibaba's repurchase of as much as one-half of Yahoo's stake, according to the U.S. company's announcement of the deal, which has been the subject of a significant amount of speculation.
The purchase price will be based on a valuation of Alibaba to be determined through equity financings that the company intends to use to fund the transaction, subject to a floor valuation of about $35 billion.
Assuming the minimum purchase price and the initial repurchase of the full 20 percent stake, Alibaba would pay Yahoo about $7.1 billion, composed of at least $6.3 billion in cash and as much as $800 million in newly issued Alibaba preferred stock.
The agreement also creates a framework for Yahoo to monetize the rest of its interest in Alibaba in second and third stages, as follows:
-- When Alibaba conducts its anticipated initial public offering, the company will be required either to repurchase one-quarter of Yahoo's current stake at the IPO price or to allow it to sell those shares in the IPO.
-- After such an IPO, Alibaba will cooperate with Yahoo as it disposes of the balance of its shares, at times of its choosing, following a customary lock-up 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," Ross Levinsohn, Interim CEO of Yahoo, said in a statement.
In the same statement, Jack Ma, chairman and CEO of Alibaba Group, said, "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."
Yahoo intends to return substantially all of the aftertax cash proceeds under the first stage of this deal to shareholders following the closing of the transaction. The company's board accordingly boosted Yahoo's share-buyback authorization by $5 billion concurrently with this transaction.
The transaction is subject to customary closing conditions.
UBS Investment Bank acted as lead financial adviser to Yahoo, while Allen & Co. LLC and Goldman Sachs & Co. also served as financial advisers. Skadden, Arps, Slate, Meagher & Flom LLP acted as lead legal counsel to Yahoo, while Weil, Gotshal & Manges LLP also acted as legal counsel. Munger, Tolles & Olson LLP acted as legal counsel to the Yahoo board of directors.
Credit Suisse acted as lead financial adviser to Alibaba. Wachtell, Lipton, Rosen & Katz acted as lead legal counsel to Alibaba. Freshfields Bruckhaus Deringer LLP acted as counsel to Alibaba on certain financing and Hong Kong legal matters, while Fenwick & West LLP acted as counsel to Alibaba on intellectual-property matters.
With its headquarters in Sunnyvale, Calif., Yahoo will host a conference call to discuss the Alibaba agreement on Monday at 5:45 a.m. PDT (8:45 a.m. EDT). The company also will host a live webcast of the conference call, together with a supplemental presentation concerning the transaction, on its investor-relations website.
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