Yahoo Keeps a Bigger Stake in its Crown Jewel

Why Restructuring the Alibaba Deal Makes Sense

FSR Staff

On October 15th, Yahoo (YHOO) reached terms to sell only 9.6% of its 24% ownership stake in Alibaba as part of the chinese e-commerce much anticipated IPO slated to arrive in the coming months.  Yahoo can sell the remaining shares after the IPO lockup period expires, usually a period of six months after the shares are listed on an exchange. In this arrangement, Yahoo is retaining 20% more shares than under the original agreement. A conservative valuation of Alibaba is $80 billion dollars, meaning Yahoo stands to gain somewhere around $20 billion from the filing of which $8 billion will be available to the company and $12 billion or 14.4% stake will remain under the Yahoo roof until lockup Ends.

This news is a positive sign that Yahoo is confident Alibaba will continue to grow at a fast clip and reach a higher market cap in the next year or so. Yahoo stands to benefit on the order of $480 million millions if the company can achieve a $100 billion market cap down the road. This assumes the company's IPO garners a $80 billion initial offering value and tacks on $20 billion over the next 6-12 months. If Yahoo sells out the remaining 14.4% stake entirely at $100 billion, it stands to receive another cash infusion north of $14 billion dollars which alone represents 40% of its current market cap of $35.35 billion.

Where do we see Yahoo headed in the next 12-18 months? To find out now, email us receive a free copy of our monthly newletter at FoundryStockReview@live.com.

Dislosure

Foundry Stock Review and its contributors have no positions in Yahoo (YHOO) the security detailed in this blog as of 11/01/2013. Periodically, Foundry Stock Review or its contributors may initiate a position in a stock covered in this blog. If we do initiate a position in any security we cover prior to publication, we will disclose the position here in our disclosure. This stock disclosure is not a recommendation to purchase or sell any security.

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