News has been out all day that Yahoo! Inc. (NASDAQ: YHOO) was closing on the stake sale of the initial sale of shares in Alibaba Group Holding Limited. The company has now confirmed the news. What is good to know is that Yahoo! is returning a substantial portion of the cash to its shareholders. This is after previous reports that CEO Marissa Mayer had indicated that Yahoo! was going to keep its options open for how it would allocate that capital.
Yahoo! confirmed that it has received approximately $7.6 billion in the deal, broken down by some $6.3 billion in cash and another $800 million in preferred shares of Alibaba. This was in exchange for half of the 40% stake that Yahoo! had. The news release shows that it is also getting a $550 million payment for a technology and intellectual property license agreement.
The net cash proceeds after taxes and fees from the first stage of the repurchase agreement total approximately $4.3 billion.
Now that the board of directors and management have met and reviewed the strategy for deployment of capital, Yahoo! is going to return $3 billion of the proceeds to shareholders in addition to the ‘down payment’ of $646 million made over the past few months. The total of $3.65 billion being returned to shareholders in after-tax proceeds represents a whopping 85% of the net cash proceeds from the initial sale of its shares in Alibaba after including the share buyback.
Yahoo! shares are now up 2% at $15.96 and Yahoo! Finance lists that the market cap of Yahoo! is $18.65 billion. We would caution on one issue here. A word search for the term “dividend” does not show up. The $3 billion comes to about 16% of the total market cap.
We just received a comment back from a Yahoo! spokesperson on this matter and the method and timing of how the return of capital will be handled has yet to be formalized. We were told:
“We haven’t announced specifics around the form of return of proceeds. The form and timing of returning proceeds will be determined by the board and management taking into consideration the best interests of the company and its shareholders.”
As far as the future value still held by Yahoo! in Alibaba:
After accretion from the Alibaba share repurchase, Yahoo! continues to own approximately 23 percent of Alibaba Group common stock, valued at $8.1 billion based on this most recent round of funding. Together with its preferred stock, the implied valuation of Yahoo!’s entire remaining stake is approximately $8.9 billion.
Under the terms of the agreement with Alibaba, the second phase allows for Yahoo! to monetize approximately half of its remaining stake at the time of an initial public offering (IPO) of Alibaba. After an IPO, Yahoo! has the right to sell its remaining shares at its discretion following a customary lock-up period.
Marissa Mayer does need to be congratulated on one key issue here. No other efforts from prior Alibaba monetization by prior management really came to fruition. Yahoo! shares are up 2% at $15.99 on the day.
JON C. OGG