Alibaba likely to give main stakeholder Yahoo cash and a direct stake in one of its operating businesses, as part of founder Jack Ma's plans to take its Hong Kong-listed unit private and strengthen his control.
According to a Friday report on Reuters, two sources with knowledge of the matter said under the new plans, the Chinese e-commerce giant would use bank loans and cash as well as an asset swap to buy back a 25 percent stake, leaving Yahoo holding 15 percent. Yahoo's current 40 percent holding is worth approximately US$13 billion to US$14 billion, according to recent deal valuations.
It was reported last week that the Alibaba intended to raise US$3 billion from six banks to buy back a majority of its 40 percent stake which Yahoo had purchased for US$1 billion in 2005.
The sources also said that Alibaba planned to pay a third of the consideration through a stake in one of its operating assets, hence making the deal tax-free. It is expected to pay the rest, or around US$6 billion, in cash.
It is most likely that Alibaba will sold a stake, and both parties have an understanding on the arrangement but no formal deal has been signed at the moment, one of the people said.
Both sources added that other Alibaba Group assets that might be used in a swap deal with Yahoo included Taobao.com, Taomall, Yahoo China and e-payment company Alipay. Yahoo would also be expected to get to decide which assets it wanted.
"Alibaba's share price had been quite bumpy since its listing," Wendy Huang, head of regional Internet and media research at Royal Bank of Scotland (RBS) Hong Kong told the news wire. "Probably taking it private will make it more flexible for the group to do the transformation that it's going through."
The Chinese group's plan was part of an overall deal discussed by Yahoo, who had appointed Scott Thompson as CEO last month to replace Carol Bartz who was fired in September. Yahoo's shareholders were reportedly frustrated at the company's stakeholders' handling investments in Alibaba and other Asian assets.
Alibaba and Yahoo both declined to comment when approached by Reuters. The sources also requested anonymity because discussions had been private.