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Yahoo’s Sale Of Alibaba Assets To Net Company $4.5 Billion Cash Infusion (Updated)
Yahoo’s wallet just got a bit fatter. The company has closed the $7+ billion sale of roughly half of its interest in Alibaba (initially purchased for $1 billion). Reportedly, after taxes, Yahoo will net $4.5 billion.
Yahoo owned roughly 40 percent of the Chinese e-commerce company. Now it owns 20 percent. The deal is part of a stock repurchase program by Alibaba. (As an aside, Alibaba is embroiled in the Acer Android-OS compatibility drama with Google.) Ultimately Yahoo will sell its entire interest in Alibaba.
The disposition of Yahoo’s Alibaba’s assets had been a matter of controversy under former Yahoo CEO Carol Bartz. However, in May of this year an agreement was reached between the companies. This is the result of that earlier agreement.
Yahoo investors had expected the money to be returned to them but it doesn’t appear that’s going to happen. New Yahoo CEO Marissa Mayer has other plans, including acquisitions. I previously speculated that one such acquisition might be Foursquare.
Mayer has been on an aggressive hiring spree of late, adding (mostly female) executives to her team and giving every Yahoo employee a smartphone (iPhone 5, Android or a Nokia Lumia 920), other than a BlackBerry. Previously she made food free for Yahoo employees at the company’s Sunnyvale, CA headquarters.
Mayer is also implementing other workspace changes designed improve working conditions and employee morale, which appear to be working.
The larger question is whether she can help the company make some of its flagging consumer and advertiser offerings more appealing (though Yahoo has a number of still-very-successful properties and programs). Yahoo has been losing ground to both Google and Facebook for several years. There has even been some speculation that Mayer might try and reinvent Yahoo search.
However from a purely PR standpoint Mayer has helped change the general tenor of coverage of the company from mostly negative to mostly positive.
Postscript: Business Insider published what appears to be Marissa Mayer’s internal memo describing what the company would do with the $4.3 billion (it turns out) in cash. She’s going to give the lion’s share of it back to the shareholders. Here’s the relevant portion of the memo:
Today we reached a very important milestone in our relationship with Alibaba – we closed a transaction selling some of our Alibaba Group shares for $7.6 billion. After taxes and fees, we have received approximately $4.3 billion. We’ll be issuing a press release imminently.
We have reviewed our strategy for the proceeds with the board of directors and have agreed that we will be returning approximately $3.65 billion to shareholders. This amount includes a ‘down payment’ of $646 million that we made over the past few months in the form of stock buybacks since the transaction was announced, as well as an additional $3 billion from today’s proceeds.
This outcome is terrific for Yahoo!. It generates liquidity to create substantial value for our shareholders, while retaining a meaningful amount in the company to invest in our future. Also, because we still own 23 percent of Alibaba’s common stock, we have the opportunity to benefit from future upside when Alibaba IPOs.
So Yahoo will keep $650 million. Perhaps Mayer didn’t want to incur the wrath of institutional shareholders in making this decision (in consultation with the board). And while $650 is a great deal of money it’s not a lot in the context of trying to make significant acquisitions or investments in the business. Overall Yahoo had about $2 billion in cash and cash equivalents on hand at the end of Q2 2012.
By comparison Google has about $15 billion in cash and cash equivalents on hand.