Due to an excellent investment seven years ago, Yahoo! saw an eightfold return on its investment in Chinese e-commerce firm Alibaba as it sold half of its stake earlier this week. The net proceeds of the sale totaled $4.3 billion, $3.65 billion of which will be distributed back to Yahoo! shareholders says newly minted CEO Marissa Miller.
According to an internal memo to Yahoo! employees, $650 million from the deal will be kept in house to foster re-investment and potential acquisitions moving forward while the remainder will be given to the people who continue to hold Yahoo! stock. Many of these people will see the funds as a reward for sticking with the recently moribund internet corporation while others would rather the funds stay in-house in order to foster a faster turnaround for Yahoo! and wunderkind CEO Miller.
Yahoo! co-founder Jerry Yang made a smart play in 2005, investing $1 billion in Alibaba for a 40 per cent stake. Over that time the companies have moved in seemingly opposite directions as Alibaba has grown into a veritable powerhouse, dominating e-commerce in the most populated part of the world. The Chinese firm is well on its way to an IPO. This is great news for Yahoo! as it still holds 23 per cent of the firm’s shares.
The decision to redistribute the funds back to shareholders was made before Miller was hired as CEO. She almost opted out of the decision, even filing paperwork before she had a change of heart that led to the memo below:
Hi Yahoos,
Today we reached a very important milestone in our relationship with Alibaba – we closed a transaction selling some of our Alibaba Group shares for $7.6 billion. After taxes and fees, we have received approximately $4.3 billion. We’ll be issuing a press release imminently.
We have reviewed our strategy for the proceeds with the board of directors and have agreed that we will be returning approximately $3.65 billion to shareholders. This amount includes a ‘down payment’ of $646 million that we made over the past few months in the form of stock buybacks since the transaction was announced, as well as an additional $3 billion from today’s proceeds.
This outcome is terrific for Yahoo!. It generates liquidity to create substantial value for our shareholders, while retaining a meaningful amount in the company to invest in our future. Also, because we still own 23 percent of Alibaba’s common stock, we have the opportunity to benefit from future upside when Alibaba IPOs.
I’d like to take a moment to thank Tim Morse, Ron Bell and everyone on their teams who worked on this deal. Today’s announcement is the result of years of savvy investment, hard work, creativity and tenacity in order to navigate an extremely complicated set of legal and tax parameters. The team’s execution has been excellent and positions Yahoo! well for future growth. Congratulations!
In the last few months, we have built great momentum around our company.
Thank you all for staying focused on our users, advertisers, and shareholders.
I’m very excited for what lies ahead!
Marissa
SOURCE: Business Insider
PHOTO: adeyemiadisa.com
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