Is Yahoo Finally Dumping Alibaba?

Yahoo (NASDAQ:YHOO) is in talks to sell roughly 20 percent of Alibaba Group Holding Ltd. for about $7 billion in a deal that would halve its stake in China’s largest e-commerce company, according to a person with knowledge of the matter.

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Alibaba Group has been trying for over a year to buy back the stake in itself. According to a Bloomberg News source, the company may announce a deal as soon as next week. The source asked not to be identified because the matter is private.

Yahoo has come close to selling its stake in the past, but was never able to reach an agreement with Alibaba. Investors have learned not to count their chickens before they’ve hatched — even if Bloomberg’s source is correct about negotiations, there’s no guarantee this round will turn out any differently than the last.

Both Alibaba and Yahoo want to make the sale happen, though. Alibaba would gain more control over its future, and possibly be able to go public, while the struggling Yahoo would be better situated for a takeover.

“For Yahoo shareholders, the sale and subsequent march towards an IPO is a clear positive, as many questioned whether Yahoo would be able to monetize its China assets at all,” Jordan Rohan, a Stifel Nicolaus analyst, in a research report today. “In addition, the capital required to take Yahoo private is reduced with each Alibaba monetization event.”

AllThingsD said the deal would likely value Yahoo’s holdings at about $7 billion, or 20 percent of Alibaba’s $35 billion enterprise valuation. After a potential IPO, Yahoo could sell more of its stake.

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