Alibaba Group said to be close to raising $8 billion (indiatimes.com)

31 July 2012 23 h 29 min Comments Off

Some US Internet companies may be unpopular with investors these days, but a Chinese one is finding plenty of takers.

The Alibaba Group, a Chinese e-commerce giant, is close to completing a more than $8 billion round of financing that will value it at as much as $43 billion in equity, according to two people briefed on the matter.

Alibaba plans to use the bulk of that new money to buy back a 20 per cent stake in itself from Yahoo for $7.1 billion. Yahoo owns 40 per cent of Alibaba.

One Yahoo executive who signed off on that deal with Alibaba, Ross Levinsohn, announced Monday that he was leaving the Internet company. The departure of Levinsohn, who served as Yahoo’s interim chief executive for three months, was expected after the company’s board hired Marissa Mayer from Google as its new leader.

With its financing nearly in place, Alibaba is prepared not only to solidify its position as the most valuable privately held Internet company but also to take a big step toward separating itself from Yahoo, which has struggled to revive its brand and stock price. Alibaba’s financing round includes a $1.5 billion sale of convertible preferred shares, based on a $43 billion equity valuation for the company, and the sale of $2.6 billion in common shares, at a roughly $35 billion valuation, the people briefed on the matter said. They requested anonymity because the discussions are private. Alibaba is also close to borrowing $4 billion.

The agreement with Yahoo stipulated that Yahoo could receive more than $7.1 billion if its Chinese partner raised money at a significantly higher valuation than it is expected to. Yet because the sale of preferred shares and common shares are subject to certain discounts, Alibaba is still expected to pay close to the original amount.

Still, that price represents a big return on Yahoo’s investment. Yahoo invested $1 billion in Alibaba about seven years ago, gaining a 40 per cent stake in what was then seen as a promising Chinese startup company.

Now the Alibaba 40 per cent stake makes up more than half of Yahoo’s $20 billion market value. Under the agreement hashed out in May, Yahoo will sell back another 10 per cent of Alibaba shares when the Chinese company goes public and divest itself of the rest at later date. Shares of Yahoo fell nearly 1 per cent Monday to close at $15.98 per share.

The two companies have butted heads a number of times in recent years. Alibaba’s decision in 2010 to spin off its Alipay online payment business prompted protests from Yahoo that it had not been properly consulted. The dispute was not settled until last summer.

Alibaba has long sought to buy back Yahoo’s interest in itself, though attempts to reach an agreement fell apart many times. Irritated that Yahoo was considering selling a minority stake in itself to investor groups last year, Alibaba threatened to wage a hostile takeover attempt to try to forestall such a possibility. The US company eventually abandoned the idea.

Alibaba is raising billions of dollars from a patchwork of international backers. Nearly a dozen investors, including hedge funds, sovereign wealth funds, mutual funds and private equity firms, will buy the preferred shares, these people said. China Investment Corp., that country’s sovereign wealth fund, will participate in the purchase of the common shares. The China Development Bank, is expected to provide a substantial portion of the loan to Alibaba.

Source: indiatimes.com (31/07/2012)

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