Saving Face (and Value), Yahoo! Secures Alibaba Compromise (YHOO)

Investing

Published: July 29, 2011 8:12 am

Last Updated: March 26, 2020 10:01 pm

Yahoo! Inc. (NASDAQ: YHOO) has managed to save face on the Alibaba disaster. An announcement was made this morning that Alibaba Group, Yahoo!, and SoftBank have all reached an agreement where Alibaba Group will continue to participate in Alipay’s future financial performance. More importantly, this unlocks the value because the terms noted that the deal will either include “a future IPO or other liquidity event.”

The deal is said to maintain the relationship between Alipay and Taobao to preserve the value within Taobao and within Alibaba Group, while also assuring that Alibaba compensated for the value of Alipay.

Alipay will continue to provide payment processing services to Alibaba Group on preferential terms.

Alibaba will license certain intellectual property, technology, and services to Alipay and its subsidiaries.

Alipay will pay a royalty and software technology services fee to Alibaba Group before a liquidity event an expense reimbursement and a 49.9% share of the consolidated pre-tax income of Alipay.

Alibaba is set to receive $2 billion to $6 billion in proceeds from an IPO of Alipay or other liquidity event.

Alipay provides payment processing services to Alibaba Group and some affiliates, including Taobao, and to third parties. Taobao is China’s largest online retail website. Alibaba Group’s principal shareholders include Yahoo!, SoftBank, and Jack Ma and Joseph Tsai. Alipay’s license in China is set to enable Alipay to continue serving Taobao and its other customers in China.

Yahoo! was just featured as one of more than 20 companies which refuse to pay dividends, despite its strong cash and liquidity on the balance sheet. There is still plenty of value to unlock here that could be paid out to holders. The Yahoo! market capitalization was $17.6 billion yesterday and shares are now up almost 6% at $14.28 in very active pre-market trading.

JON C. OGG

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