Yahoo Inc said it is to sell up to half of its stake in Internet entrepreneur Jack Ma's Alibaba Group back to the Chinese company for $7.1 billion, and hand most of the sale proceeds to its shareholders.
The deal caps years of discussions between the two companies over Alibaba reclaiming some or all of the 40% stake in the Chinese e-commerce firm that Yahoo! bought for about $1 billion in 2005. Under the agreement, Yahoo! will sell half of that stake in Alibaba for at least $6.3 billion in cash and up to $800 million in new Alibaba preferred stock.
Yahoo's Alibaba stake and its 35% holding in Yahoo! Japan, which it jointly owns with Softbank Corp , are considered the crown jewels of the struggling US Internet company. Some investors have said Yahoo! should monetize some of those holdings and return the proceeds to shareholders.
Yahoo! said in a statement it would return "substantially all" of the after-tax cash proceeds from the deal to its stockholders. Yahoo! said it increased a planned share buyback by $5 billion.
Analysts have said most of Yahoo's value is locked up in its Asian assets and selling them down would simplify its ownership structure, making it easier for investors to value Yahoo's core US operations.
A source familiar with the deal said Yahoo! has built in incentives for Alibaba Group, which operates the popular Chinese online marketplace Taobao, to hold an initial public offering by end-2015. It listed its Alibaba.com Ltd unit in 2007.
Yahoo, whose revenue slid by more than a fifth last year, brought in former PayPal President Scott Thompson as chief executive in January, five months after Carol Bartz was fired, but Thompson resigned earlier this month after he was accused of padding his biography by faking a computer science degree.
Ross Levinsohn is now Yahoo's interim CEO.
Yahoo! has come under fire for failing to take aggressive action in past years to reverse a decline in advertising revenue in the face of competition from Google Inc and Facebook.
Ma has tried to buy back the 40% of his company owned by Yahoo! several times in recent years, only to be rebuffed by Yahoo!. The rocky relationship between the companies came to a head a year ago when it was revealed Alibaba had abruptly handed Alipay - one of Alibaba's crown jewels - to a company controlled by Ma, apparently without Yahoo's knowledge.