The LookoutWall Street investors, analysts react to Yahoo deal with Alibaba
Wall Street investors responded positively to news that Yahoo had agreed to a $7.1 billion deal to sell off as much as half its interest in the Alibaba Group, as the Silicon Valley company's share prices increased slightly in Monday morning trading.
The two companies on Sunday announced a deal whereby Alibaba, a Chinese e-commerce company, will buy back half its 40 percent stake from Yahoo for $6.3 billion and up to $800 million of Alibaba preferred shares. Proceeds from the deal are to be returned to shareholders.
Yahoo will sell another piece of ownership of Alibaba, either directly to the company or to investors via Alibaba's planned public stock offering. Yahoo's remaining shares in Alibaba will be sold sometime after the IPO.
Trading opened at $16 per share Monday, up 3.7 percent from the closing price of $15.42 on Friday.
The deal ends a protracted—and confrontational—relationship between Yahoo and the Hangzhou, China-based firm.
Wells Fargo analyst Peter Stabler, cited in a MarketWatch article, said the deal is "a positive outcome that balances substantial near-term shareholder capital return with opportunity to partake in potential upside of Alibaba growth and potential IPO with clear path to future monetization."
Michael Clendenin, of RedTech Advisors in Shanghai, told Reuters that Yahoo got a "decent compromise" and that the Sunnyvale, Calif.-based company would never have been able to keep its stake in Alibaba and expect to see the Chinese company's IPO.
"Credit to [Alibaba founder, chairman and CEO] Jack Ma," Clendenin said. "He's a wheeler and dealer, and he got a very good deal on this one."
Meanwhile, Napoleon Biggs, head of digital integration at public relations firm Fleishman-Hillard Asia Pacific, told the Associated Press that the deal, which closes in six months, is good for Yahoo because it gets a "wad of cash" but still has exposure to fast-growing China.
"China for them was like a sore tooth," Biggs said.
The relationship with Alibaba has been a contentious one for Yahoo. As the AP points out, Alibaba's Ma had a strong personal rapport with Jerry Yang, Yahoo's co-founder who led to Yahoo's initial investment in Alibaba. But ties between the two companies soured when Yang was ousted as CEO and replaced by Carol Bartz.
Bartz was eventually fired Yahoo's board. Her successor, Scott Thompson, left the company in the wake of a resume scandal. The company is currently under the direction of interim CEO Ross Levinsohn.
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