With Alibaba officially headed toward an initial public offering, it’s finally time forYahoo! (YHOO) to cash in.
For years now American investors have bought shares in Yahoo, which owns nearly a quarter of Alibaba, as one of the easiest way to bet on a bright star of the Chinese Internet industry. By some measures Yahoo’s non-Alibaba business accounts for only about 12 percent of its market value.
In a sense, the coming windfall from the IPO will be a legacy of Yahoo’s past glory. It first invested in Alibaba in 2005, paying a piffling $1 billion for a 40 percent share back when the Chinese upstart was after some Silicon Valley savvy. But those roles have pretty much reversed: Yahoo is now the remora to Alibaba’s megaladon.
As of today Yahoo owns about a 24 percent stake of Alibaba, a portion that could be worth as much as $37 billion, according to an average of analyst’s estimates compiled by Bloomberg News. Yahoo will experience its windfall as a mixture of cash and continued equity. Because of agreements between the two companies, Yahoo has to get rid of a significant portion of its holdings the minute Alibaba goes public, selling those shares at the initial price and missing out on the first-day market bump.
Kenneth Goldman, Yahoo’s chief financial officer, recently told investors that Yahoo would likely sell 10 percent of Alibaba and hold on to 14 percent. Such a sale would mean $15.4 billion in cash, added to the $5 billion in cash that Yahoo had as of the end of last year.
This wouldn’t be the first time Yahoo has bolstered its coffers by selling off a portion of Alibaba. Yahoo made $4.6 billion in 2012 by selling shares back to Alibaba itself, valuing the company at a fraction of what it would be today. “Forgive me for using hindsight here, but clearly I wish we hadn’t done that,” said Goldman at a conference earlier this month.
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