May 27, 2024

DealBook: Alibaba Said to Seek Billions to Buy Back Yahoo Stake

Alibaba's headquarters in Hangzhou, China. The online retailer wants to repurchase part of Yahoo's stake for $7.1 billion.Nelson Ching/Bloomberg NewsAlibaba’s headquarters in Hangzhou, China. The online retailer wants to repurchase part of Yahoo’s stake for $7.1 billion.

The China Investment Corporation is in advanced talks to add as much as $2 billion to the Alibaba Group to help finance the Internet company’s efforts to buy back a stake from Yahoo, a person briefed on the matter said on Thursday.

The Chinese Investment Corporation, known as C.I.C., a $200 billion Chinese sovereign wealth fund, is one of several potential partners from which Alibaba would raise money to pay for the stake repurchase. On Sunday, Alibaba announced a long-awaited deal to buy back half of Yahoo’s 40 percent stake in the company for $7.1 billion.

To finance the purchase, Alibaba is raising about $4.6 billion in total. The Chinese Internet company is holding talks with a number of other firms, including Temasek, a Singaporean sovereign fund; DST Global, the Russian investment firm; and the Blackstone Group, according to the person and others briefed on the discussions, who sought anonymity because they were afraid they would lose their jobs.

The pact with Yahoo values Alibaba at about $35 billion, though that figure could rise if the Chinese company is able to raise financing at a higher valuation.

Over the last several years, Alibaba has undertaken several moves that could lead to its transformation, including steps toward an initial public stock offering down the road. On Thursday, Alibaba was completing the takeover of its publicly traded subsidiary,

But the biggest move has been securing an agreement with Yahoo over the repurchase of the stake, which begins the unwinding of an often tense partnership.

While Yahoo’s investment in Alibaba in 2005 helped the Chinese company become a premier Internet and e-commerce player in that country, the two have clashed over a number of issues. Perhaps the bitterest conflict began in 2010, when Alibaba decided to spin off Alipay, its online payment business. Yahoo protested that it had not been properly consulted before the move, setting up a battle that was resolved only last summer.

Alibaba first sought to buy back some of the stake Yahoo held several years ago, but the American company backed out late in the process. The abrupt end to the discussions was believed to have rankled Jack Ma, Alibaba’s chief executive, who felt that the break had hurt his relationships with companies that had agreed to back that first repurchase agreement.

Alibaba and Yahoo resumed talks late last year, hoping to reach a deal on a complicated transaction known as a cash-rich split, which would have amounted to a tax-free asset swap. But those talks ran aground earlier this year over a number of concerns, including breakup fees and the valuation of Alibaba.

The two tried again in March, aiming for a simpler deal in which the Chinese company would buy back some of its stake directly. Talks between the two companies — led by Alibaba’s chief financial officer, Joe Tsai, and his Yahoo counterpart, Timothy R. Morse — proceeded smoothly in the final effort at negotiations, with many details being decided fairly quickly.

It now appears that a new détente has emerged. Yahoo, for instance, has agreed to give up certain voting powers and an ability to name a second director to Alibaba’s board as part of the stake repurchase agreement announced on Sunday.

That may help allay concerns by Chinese regulators that Alibaba is controlled by foreign investors, worries the company has been keen to eliminate.

News of Alibaba’s talks with C.I.C. was reported earlier by Reuters.

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