Yahoo Inc. has agreed to sell half of its 40 per cent stake in Chinese e-commerce group Alibaba for about $7.1 billion, securing a financial lifeline for the struggling U.S. Internet company.
The deal, announced Sunday in the U.S., will see Alibaba Group buying back the stake from Yahoo Inc. for $6.3 billion cash and up to $800 million of Alibaba preference shares.
The announcement caps at least a year of on-and-off talks as Yahoo tried to sell its stake. Money from the sale might help Yahoo appease its shareholders by giving it the ability to pay dividends, make acquisitions or buy back its own shares.
The two companies also have an agreement for Yahoo to sell the remainder of its Alibaba stake in stages later on.
Yahoo's interim CEO Ross Levinsohn said in a statement that the agreement provides "clarity" for Yahoo shareholders.
A person with knowledge of the deal said there are incentives built into the transaction that would make it attractive for Alibaba Group to hold an initial public offering by the end of 2015.
The person, who spoke on condition of anonymity because they were not authorized to discuss the details, said there was no timing or formal commitment for an IPO.
Alibaba Group is in the process of privatizing its Hong Kong listed unit.
Alibaba Chairman and CEO Jack Ma said the deal establishes a "balanced ownership structure that enables Alibaba to take our business to the next level as a public company in the future."
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