Chinese e-commerce site Alibaba has bought half of Yahoo’s stake in the company — 20% of Alibaba’s shares — back from Yahoo for $7.1 billion.
Under the terms of the agreement, Yahoo will sell half its stake in Alibaba for at least $6.3 billion in cash and up to $800 million in new Alibaba preferred stock.
Yahoo had bought a 40% stake in Alibaba for about $1 billion in 2005. Back then Yahoo was still one of the most successful internet companies around, but somewhere around that time Yahoo’s revenue stopped growing, and the company never managed to get back on the right track.
On the other hand, Alibaba has been doing great, with $2.34 billion in revenue in the year ended Sept. 30 and a projected 42% growth this year. The success of Facebook’s initial public offering probably encouraged Alibaba to go public, and the stock buyback is a step towards that goal.