What Would Alibaba’s Stake Sale Bring To Yahoo! Inc. (NASDAQ:YHOO)?

Posted by Lynn Eisler May 9, 2014 0 Comment 1465 views

After Alibaba Group Holdings Limited’s initial public offering (IPO) filing, Yahoo! Inc. (NASDAQ:YHOO)’s shares fell dramatically on concerns its stake in the Chinese dotcom giant may be worth less than believed.

Following the Alibaba’s stock market offering, Yahoo’s shares witnessed a drop of about 6.6 percent on Wednesday trading. Interestingly, Alibaba’s IPO showed Yahoo’s stake 22.6 percent, against 24 percent (a figure which had been previously anticipated).

Analysts believe that Yahoo! Inc.’s Chief Executive Marissa Mayer is expected to face a critical decision related to the Alibaba IPO, as the U.S.-based search engine company plans to sell 40 percent of its remaining stake or 208 million shares in Alibaba.

When Yahoo! bought stake in Alibaba

It should be noted that in 2005, Yahoo bought a 40 percent stake in Alibaba Group for a whopping $1 billion, of which Alibaba bought back a portion of own shares owned by Yahoo for about $7.1 billion in cash and stock. Under the buy back agreement, Alibaba paid $550 million more as part of its “revised agreement” in 2012.

The search engine giant could raise about $10 billion from selling its stake in Alibaba, which will help the struggling company to raise its accumulated cash by more than two-fold.

Analysts believed that the stake sale will bring in tremendous pressure for Mayer, as the selling of stakes would enable Yahoo to dramatically boost its financial status and improve the profitability.

Yahoo had been struggling since past couple of years and had come up with turnaround initiatives several times in the past, but all in vain. The initiatives hardly brought any financial boost for the struggling search engine company. But, this time the Alibaba stake sale is seen as a golden opportunity for Yahoo to improve its financial status as well as competitiveness against rivals such as Google.

About Lynn Eisler

Lynn Eisler is a national news reporter focusing on economic issues, data analysis and the financial health of state and local governments. Lynn has been honored with the H.L. Mencken Award for Investigative Reporting, the Champion of Justice Award for reporting on the drug war, and the John Hancock Award for business reporting. Lynn was also a Knight Medical School Fellow at the University of Michigan.

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