Jack Ma to Offer Alibaba.com to Buy Back Yahoo's Stake

Jack Ma is so determined to buy back Yahoo’s 40% stake in his Alibaba Group that he’s willing to give up its shares in the publicly traded subsidiary Alibaba.com.

For months now both Jack Ma and Softbank CEO Masayoshi Son have been in talks with Yahoo to work out a deal that would allow them to buy back Yahoo’s 40% stake in the Alibaba Group and 35% stake in Yahoo Japan, a key component of Son’s Softbank empire.

Talks were stalled until Ma expressed his willingness to put Alibaba.com shares on the table. The offer is meaningful because it is an asset in which Yahoo has interest in acquiring a stake and it is 75% owned by Ma’s Alibaba Group.

Trading in shares of Alibaba.com was halted on the Hong Kong Stock Exchange Thursday after the company disclosed that it was in discussions with its parent about selling off a substantial share to Yahoo.

The proposed deal would require Alibaba and Softbank to create new subsidiaries that would contain cash and operating assets, including Alibaba.com shares. Yahoo would then be able to do a tax-free exchange of most of its stake in Alibaba and all its stake in Yahoo Japan for the newly created subsidiaries.

Yahoo’s stakes in Alibaba and Yahoo Japan would be valued at about $17 billion if the deal is consummated.

Ma had previously discussed offering Yahoo shares in the video site Hulu and the Weather Channel. But the Alibaba Group would have had to first acquire a controlling stake in those asseets to make the deal, making the proposals less practical than simply using shares of Alibaba.com. Yahoo would get as much as a third of the B2B e-commerce portal under the contemplated deal. As of Thursday Alibaba.com’s market value was just under $6 billion.

The deal appeals to Yahoo’s goal of moving into e-commerce. Its new CEO is Scott Thompson, former president of the online payments processor PayPal which is owned by eBay. Thompson had told analysts in a conference call that he was considering new business models to move Yahoo forward.

The parties hope to finalize the deal in March, then seek formal approval from the Internal Revenue Service as a tax-free exchange. The transaction would most likely not close until early 2013.