GeekWire File Photo.
GeekWire File Photo

Alibaba, the Chinese e-commerce giant and Amazon rival, is seeking a loan of as much as $4 billion from at least eight banks, which it will use to fund its expansion plans including acquisitions and a possible buy-back of its own stock from Yahoo, the Wall Street Journal reported.

Reports say that Alibaba will start its round at $3 billion and will go up to $4 billion if there is high demand from lenders, As of last year, Alibaba had at least $18 billion to work with and access to billions more in credit, according to Forbes.

Historically, Alibaba has been eager to acquire promising companies as it fights off tightening competition from hometown rivals Tencent and Baidu, all while China’s national economy slows. As of last year, the three companies have been involved in more than $30 billion in acquisitions as they expand into the O2O market — online to offline services, which take online customers to physical stores for orders, returns, and pick-ups. Analysts from BNP Paribas SA predicted that Alibaba could spend as much as $38 billion on acquisitions this coming year as it moves beyond e-commerce to offline markets, so it is likely that some of Alibaba’s new money will go toward acquisitions.

yahoo
Yahoo CEO Marissa Mayer

However, beyond acquisitions, there is another possible use for Alibaba’s new funds: buying back the stake that Yahoo owns in the Chinese company. In 2005, Yahoo purchased 40 percent of Alibaba, but then sold off a large portion of those shares during Alibaba’s record IPO in 2014. Despite those sales of Alibaba stock, Yahoo continues to own a significant stake of 384 million shares in the Chinese e-commerce giant, valued in December at about $38 billion.

Originally, Yahoo planned to create a spinoff from its Alibaba shares, lessening its reliance on Alibaba. But Yahoo called off those plans in December due to a potential $10 billion tax liability. Now it is considering creating a reverse spinoff from its core businesses and other “strategic alternatives” to separate itself from the Chinese online retail company.

“Separating our Alibaba stake from Yahoo’s operating business is essential to maximizing value for our shareholders,” said Yahoo CEO Marissa Mayer in a release.

In the meantime, China’s stock market has taken a hit, and Forbes estimates that Yahoo’s shares in Alibaba are now valued at around $24 billion.

While buying Yahoo’s stake would be expensive for Alibaba, the Chinese e-commerce giant could then sell some of its shares into its New York listing or to big institutional investors to quickly make back some of the money spent in the buy-back. Once it purchases Yahoo’s stake, Alibaba would have more control over its own future direction and Yahoo would be have more cash to continue re-building its core online businesses — a potential boon for both companies.

 

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