Do Me a Solid? Alibaba Can Allow Yahoo to Keep Its Shares in the IPO (But It Probably Won’t).
Here’s a little factoid that a lot of the coverage of the Alibaba Group IPO filing has gotten a bit wrong: There is a scenario in which Yahoo could hold onto some of the hundreds of millions of shares it has agreed to sell into the offering.
The catch: Only if Alibaba execs allow it.
And while Yahoo execs have been pressing counterparts at Alibaba to allow it to sell fewer shares, according to sources, it is unlikely that the leaders of the Chinese e-commerce giant will comply.
Still, one can hope and dream!
And make bank, because if Alibaba did this, it would probably mean a lot of dough for Yahoo, since most expect the stock of the Chinese company to pop post-offering. In other words, Yahoo will make a pile of money no matter what, but not as big a pile of money as it could.
As everyone now knows, Alibaba finally filed for that long-expected IPO today — as Re/code had reported it would — making it one of the biggest global Internet events of late.
The offering is expected to be a windfall for its investors, including Yahoo, which holds a 24 percent stake. The Silicon Valley company has agreed to sell just under half of that into the IPO.
But there is a small loophole in the original agreement, made in May of 2012, in which increasing tensions between Yahoo and Alibaba were lanced. It noted then that Yahoo had to sell shares, but only at the “election” of Alibaba.
Election meaning: Alibaba’s choice.
In the 2012 deal, Yahoo agreed to part with 261.5 million shares out of 523.6 million shares, “either back to Alibaba concurrently with the completion of the Qualified IPO, or will sell 261.5 million Shares directly to IPO purchasers as part of the Qualified IPO.”
At the time, Alibaba also bought back 20 percent of Yahoo’s stake for more than $7 billion in cash and preferred stock. Previous Yahoo execs, including co-founder Jerry Yang, had bought just over a 40 percent stake of the Hangzhou-based Alibaba in 2005 for $1 billion, which now looks like the greatest trade of the last century.
But in October of 2013, under new CEO Marissa Mayer, Yahoo and Alibaba amended the agreement that reduced the “maximum number of shares of Alibaba Group that Yahoo is required to sell in connection with a qualified initial public offering of Alibaba, from 261.5M shares to 208M shares.”
In that change, Alibaba very much did Yahoo a solid, with its leaders mentioning how important it was to get along with one of its bigger shareholders.
“Under its new leadership, Yahoo has made it a priority to build a good relationship with Alibaba,” said top Alibaba exec and board member Joe Tsai. “We look forward to working with Yahoo as a supportive shareholder and partner to expand our business for future growth.”
According to sources, that is the one hope that Yahoo has to get Alibaba to force it to sell less — it is a better and more stable investor than some tetchy hedge fund or irritating institutional investor.
Still, if it does not offer up Yahoo shares for sale, Alibaba will probably have to gin up more from its own kitty. So — since the initial IPO filing gave no indication — we’ll see how generous it wants to be. If it were to allow Yahoo to keep more shares at all, sources said it will still be a very small amount.
One thing Alibaba is letting Yahoo keep, according to the filing, is director and Yahoo exec Jackie Reses, who will leave the Alibaba board as part of the transaction.
Until then, here are the relevant passages from 2012 and also the amended statement in which Alibaba allowed Yahoo to sell fewer shares into the IPO:
In the event Alibaba completes a Qualified IPO in the future, Yahoo! will, at Alibaba’s election, either sell up to 261.5 million Shares either back to Alibaba concurrently with the completion of the Qualified IPO, or will sell 261.5 million Shares directly to IPO purchasers as part of the Qualified IPO. If the Shares are sold back to Alibaba, the purchase price per Share in the IPO Repurchase will be equal to the IPO per share price less specified fees and underwriter discounts. If a Qualified IPO has not occurred by December 31, 2015, Yahoo! shall only be required to sell such Shares as it owns at the time of a Qualified IPO. A “Qualified IPO” must meet the following criteria: (1) the gross proceeds of the IPO are at least $3 billion; (2) the Shares offered in the IPO are listed on the Hong Kong Stock Exchange or a U.S. national securities exchange, or under certain circumstances, listed elsewhere in the PRC; (3) the gross offering price per share exceeds 110% of the price at which Yahoo! sells Shares to Alibaba in the Initial Repurchase; and (4) one of the joint global coordinators of the IPO is selected by Yahoo!.
SUNNYVALE, Calif. — (BUSINESS WIRE) – Yahoo! Inc. (NASDAQ:YHOO) announced today that it has entered into an amendment to the share repurchase and preference sale agreement with Alibaba Group Holding Limited. The amendment reduces the maximum number of shares of Alibaba Group that Yahoo is required to sell in connection with a qualified initial public offering (IPO) of Alibaba, from 261.5 million shares to 208 million shares.
The original repurchase agreement, entered into in May 2012, provided that in the event Alibaba completed a qualified IPO, Yahoo would sell up to 261.5 million of its 523.6 million ordinary shares of Alibaba, either directly to Alibaba Group or in the qualified IPO. After an IPO, Yahoo has the right to sell its remaining shares at its discretion.
“Yahoo has always believed in the long-term potential and value of Alibaba, and we are pleased to maintain a larger stake in the company’s future,” said Jacqueline D. Reses, Chief Development Officer of Yahoo and Alibaba board member. “We look forward to continued partnership with Jack, Joe and the entire Alibaba team.”
“Under its new leadership, Yahoo has made it a priority to build a good relationship with Alibaba,” said Joe Tsai, Executive Vice Chairman and board member of Alibaba, “We look forward to working with Yahoo as a supportive shareholder and partner to expand our business for future growth.”