Yahoo, Alibaba Negotiating Swap Of Assets
February 11, 2012

Yahoo, Alibaba Negotiating Swap Of Assets

Yahoo and its longtime Chinese partner Alibaba are in the midst of complex negotiations to restructure the California-based web portal and search engine company's Asian holdings, various media outlets reported on Friday.

According to Prudence Ho of the Wall Street Journal, Alibaba Group Holding Ltd. is attempting to borrow $3 billion in order to re-purchase shares currently held by Yahoo, Inc.

She reports that six banks (Australia and New Zealand Banking Group Ltd., Credit Suisse Group AG, DBS Bank Ltd., Deutsche Bank AG, HSBC Holdings PLC and Mizuho Financial Group Inc.) are in the midst of securing internal approval to underwrite the loan, which will have a three-year term and a yield of approximately 4%.

Sources told the Journal that the loan is expected to be completed later on this month.

As part of the process, Alibaba plans to take their Hong Kong-listed unit private, a pair of unnamed sources told Reuters' Prakash Chakravarti Friday. Forbes writer Simon Montlake added that the subsidiary suspended trading on Thursday pending an announcement of the $3 billion loan.

Chakravarti said that the maneuver is "part of a complex deal that would strengthen founder Jack Ma's control and give key stakeholder Yahoo cash and a direct stake in one of Alibaba's operating businesses."

"Under the plans being discussed, Alibaba Group would use bank loans and cash plus an asset swap to buy back about a 25 percent stake, leaving Yahoo holding 15 percent, the sources said," the Reuters reporter added. "The U.S. group's 40 percent holding is worth an estimated $13 billion to $14 billion, based on recent deal valuations."

Under the terms of the proposed deal, both Alibaba and Softbank would form new subsidiaries containing cash and operating assets, Michael J. De La Merced and Evelyn M. Rusli of the New York Times wrote in a February 10 article.

Yahoo would take over control of those entities in exchange for surrendering most of their ownership in Alibaba and all of their shares of Yahoo Japan, they added. The deal would value Yahoo's shares in its Asian partners at a reported $17 billion, though talks were not finalized as of Friday evening.

Montlake refers to the proposed exchange as "a tax-free swap of assets" between Yahoo and both Alibaba and Softbank which would be "an alternative to a straightforward cash or stock buyback."

Online video streaming website Hulu and the Weather Channel have been named as possible exchange targets, he said, as has Alibaba's Taobao online marketplace -- though Forbes says that "it´s hard to imagine that Alibaba wants to share its prize jewels with Yahoo. Indeed, the point of the deal is to unwind a soured partnership."


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