Yahoo is reconsidering a proposal to dramatically reduce its 40% stake in the Chinese Internet company Alibaba Holdings and to sell its 35% stake in Yahoo Japan, according to multiple reports that value the overall transaction at between $17 billion and $18 billion. Yahoo’s market capitalization before news broke of the possible deal was about $18.5 billion. The deal is valued at close to $14 a Yahoo share, sources said. The way it might work is that Alibaba and Softbank, Yahoo Japan’s majority owner, would create new separate entities that would consist of stock and some operating assets. This would allow Yahoo to swap out most of its stake in Alibaba and all of its stake in Yahoo Japan. Under US tax law the transaction would count as a swap not subject to taxes rather than a sale, which would. Yahoo is expected to keep a 15% percent stake in Alibaba which would allow it to hold on to a piece of the fast-growing company. It is also possible that investment companies Silver Lake and TPG Capital could join the deal for a minority stake. Yahoo’s board may still reject the offers but momentum seems to be building toward a deal. Separately, however, Alibaba and Softbank stand ready to bid for all of Yahoo, sources said, in the event the board nixes the plan. While the once high-flying Yahoo has been eclipsed by Facebook and Google, it remains one of the most popular Internet portals. Its stakes in the Asian companies are the company’s most valuable assets, and the proposed deal would allow Yahoo to return cash to its investors and focus on rejuvenating its US operations.
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