We knew the two firms had been close to finalizing the agreement since May, but today they finally made it official. Under the agreement, Alibaba has the right to buy back half of Yahoo’s 40 percent stake. Yahoo will get about $6.3 billion in cash and $800 million in preference shares in Alibaba. Yahoo originally acquired the 40 percent stake in Alibaba back in 2005 for $1 billion, meaning Yahoo made a stellar investment.
“The completion of this transaction begins a new chapter in our relationship with Yahoo,” said Jack Ma, CEO of Alibaba Group, in a statement. “We are grateful for Yahoo’s support of our growth over the past seven years, and we are pleased to be able to deliver meaningful returns to our shareholders including Yahoo.”
After taxes, the deal will end up netting Yahoo about $4.5 billion. That cash could go a long way to helping new Yahoo CEO Marissa Mayer reinvigorate the company. Mayer wants to bring a new product focus to the company and might spend some of the cash on acquisitions.
Update: A leaked memo from Yahoo indicates that it will give $3.65 billion from the Alibaba deal back to shareholders while retaining $650 million for other investments.
“This outcome is terrific for Yahoo,” Mayer wrote in the memo. “It generates liquidity to create substantial value for our shareholders, while retaining a meaningful amount in the company to invest in our future.”