Alibaba and Yahoo are finally getting a divorce. In a complex, staged transaction Alibaba will be able to buy back all of Yahoo’s minority interest in the company.

When Yahoo was a stronger company, several years ago, it was on good terms with Alibaba CEO Jack Ma. Yahoo invested about $1 billion in 2005 in the Chinese online marketplace.

Then Yahoo CEO Jerry Yang and Ma got along well. However the relationship later soured and Alibaba became eager to regain its shares and be free of Yahoo. For their part Yahoo investors wanted the company to reap value from its Alibaba investment.

Yahoo’s interest in Alibaba and its minority stake in Yahoo Japan are regarded by institutional investors as its most valuable assets — more valuable than the core Yahoo business itself.

Previous talks between Alibaba and Yahoo had stalled over valuation conflicts and Alipay, Alibaba’s payments unit. There had even been talk that Alibaba would try and buy Yahoo with private-equity help at one point.

The deal announced this morning allows Alibaba to buy back half of Yahoo’s stock for $7.1 billion ($6.3 billion in cash proceeds and up to $800 million in Alibaba preferred stock). The remaining Yahoo interest will be sold in a future transaction at or around the time Alibaba goes public.

Yahoo said that most of the after-tax money would be distributed to shareholders.

Related Topics: Channel: Industry | Yahoo | Yahoo: Business Issues

About The Author: Greg Sterling is a Contributing Editor at Search Engine Land. He writes a personal blog Screenwerk, about SoLoMo issues and connecting the dots between online and offline. He also posts at Internet2Go, which is focused on the mobile Internet. Follow him @gsterling. See more articles by Greg Sterling

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