Yahoo! Inc. (YHOO) announced that Alibaba.com Ltd. (ALBCF.PK) agreed to repurchase about a 20% stake in itself from Yahoo! for about $7.1 billion.
At the minimum price and assuming the initial repurchase, Yahoo! would receive at least $6.3 billion in cash proceeds and up to $800 million in newly-issued Alibaba preferred stock.
The agreement includes substantial financial incentives for Alibaba to raise the additional equity at a valuation higher than $35 billion.
Alibaba also will be required to either buy back a quarter of Yahoo's current stake at the price of a future initial public offering or let Yahoo sell the shares in the IPO.
Yahoo! intends to return substantially all of the after-tax cash proceeds to shareholders following the closing of the transaction.
While the form of the return of capital to shareholders has not yet been finalized, Yahoo!'s board has increased Yahoo!'s share buyback authorization by $5 billion concurrently with this transaction.
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