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Gillian WongThe Wall Street JournalCANCEL
BEIJING—Chinese e-commerce company Alibaba Group Holding Ltd.
is unlikely to pursue U.S. Internet portal Yahoo Inc.
’s flagging core business, according to a person familiar with Alibaba’s thinking.
Buying Yahoo’s core Internet business, should it be offered for sale, isn’t attractive given the difficulties successive managers have had in turning it around, the person said Thursday. Alibaba isn’t interested in Yahoo’s stake in Yahoo Japan Corp.
either, the person said.
In addition, Alibaba would only be interested in repurchasing Yahoo’s 15% stake in Alibaba if it came at a steep discount that raised earnings per share, the person said.
Yahoo’s board is holding a series of meetings this week to consider selling off the Internet businesses. Among its options, Yahoo is weighing how to make the most of its stake in Alibaba, currently valued at more than $30 billion, and its 35% stake in Yahoo Japan, now valued at roughly $8.5 billion.
Given its stake in Alibaba, Yahoo’s strategic review raised the option for the Chinese company to come in and buy back its shares and, potentially, purchase other parts of Yahoo. It is unclear whether Alibaba’s interest in these assets could change over time. For now, the person familiar with Alibaba’s thinking said the company is passing.
Regarding Yahoo’s core business, the person said Alibaba has little interest in striking a deal for an operation that has floundered in recent years. Yahoo has experienced a decline in sales of its desktop display advertising and has been eclipsed by younger competitors such as Facebook Inc.
and Google Inc. The company’s management faces investor pressure to consider alternatives to the current turnaround attempt.
For Alibaba, the person said, buying Yahoo’s stake in Yahoo Japan is unattractive because it would amount to a minority position in a business controlled by Japan’s SoftBank Group Corp.
, the largest shareholder. SoftBank owns a 43% stake in Yahoo Japan.
Using cash to buy back Yahoo’s Alibaba stake would likely weaken Alibaba’s balance sheet and limit its ability to do strategic deals elsewhere, the person said. In its most recent earnings report, Alibaba said it had $16.6 billion in cash, cash equivalents and short-term investments.
The company’s share price has been on a roller coaster in the year since its blockbuster $25 billion initial public offering. Shares in Alibaba fell 2.8%, or $2.41, to $82.59 on the New York Stock Exchange on Thursday.
Three years ago, Alibaba bought about half of Yahoo’s then-40% stake in a deal valued at roughly $7.6 billion, with the backing of China’s sovereign-wealth fund China Investment Corp. and a clutch of private-equity firms.
If Yahoo proceeds with spinning off its Alibaba stake, the potential tax consequences of buying the spun-off company would likely deter Alibaba, the person said. Yahoo was unable to get the U.S. Internal Revenue Service to sign off on a tax-free plan to spin off its Alibaba shares, raising the risk that the agency could later challenge the spinoff’s tax-free status.
Yahoo seems likely to have a number of suitors. Companies expected to explore a purchase if Yahoo decides to sell include Verizon Communications Inc.
and Barry Diller’s IAC/InterActiveCorp.
, people familiar with the matter said. Others might be interested in pieces of Yahoo, if they become available, including News Corp, owner of The Wall Street Journal, and magazine publisher Time Inc., according to executives familiar with the situation. Private-equity firm TPG Capital has also looked at buying various media properties within Yahoo, said a person familiar with the matter.
In deploying its own cash hoard, Alibaba has been investing aggressively to fend off competition domestically from rival Internet company Tencent Holdings Ltd.
and competing e-commerce retailer JD.com Inc.
It has poured money into logistics and efforts internationally to bring more overseas merchandise to Chinese consumers.
Alibaba has also shown a growing appetite for snapping up control of media platforms. In November, it agreed to buy Chinese online video provider Youku Tudou
, in which it already owned about a one-fifth stake, in a deal valuing the video company at roughly $4.4 billion. The e-commerce company is in talks to purchase a controlling stake in SCMP Group Ltd.
of Hong Kong, publisher of the South China Morning Post newspaper, according to people familiar with the discussions. The South China Morning Post is Hong Kong’s largest local English-language newspaper.
—Rick Carew in Hong Kong contributed to this article.
Write to Gillian Wong at firstname.lastname@example.org
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