A decade ago, Internet search giant Yahoo bought a 40 percent stake in a small Chinese commerce startup named Alibaba as the company looked to expand its operations into China. Since then, the two companies have gone in different directions, and there are now rumors that Alibaba could flip the script later this year, depending on what CEO Marissa Meyer wants to do with her now lucrative Alibaba holdings at the Jan. 27 press conference.
After its $25 billion IPO launch in September, Alibaba has been looking for ways to expand its global footprint through various acquisitions and strategic partnerships with startups or international companies. Alibaba has recently acquired a $1 billion stake in insurance company New China Life, China’s leading life insurer, as well as its partnership with Israeli QR startup Visualead, Reuters reported. The aim of these acquisitions, as theorized by Forbes contributor Doug Young, is to increase Alibaba’s market share beyond China as well as to create a diversified portfolio.
This is what makes the Yahoo-Alibaba partnership more interesting, according to Young. Yahoo still owns a 40-percent stake in Alibaba, now valued at over $40 billion, that it isn’t allowed to sell until after the one-year anniversary of Alibaba’s IPO. Yahoo’s declining market share in Internet search and e-commerce has also meant that the bulk of the company’s $46 billion valuation comes from the 384 million shares of Alibaba it now holds. Should Yahoo sell its stake, Young said it could trigger a deal with Alibaba to buy Yahoo for $5-8 billion, which is the estimated valuation of the company without its Alibaba holdings. This would give Alibaba access to Yahoo’s global markets, most notably the United States.
There are other companies entertaining the idea of buying up Yahoo as well, such as Japanese mobile carrier Softbank, which has an existing stake in Yahoo Japan and could buy the company if and when Meyer decides to sell her shares. Young predicts that there is a “50-50” chance at the moment that Alibaba buys Yahoo rather than Softbank, with the alternative being that Yahoo goes independent. Alibaba has more to gain from buying Yahoo than Softbank, and with $18 billion in its “cash pot” along with billions more available as credit, the company has room to spend.