Hong Kong - Yahoo has agreed to sell half of its 40% stake in Chinese e-commerce group Alibaba for about $7.1bn, and the struggling US internet company said it would return most of the cash to shareholders.
The deal, announced Sunday in the US, will see Alibaba Group buying back the stake from Yahoo for $6.3bn cash and up to $800m of Alibaba preference shares.
The announcement caps at least a year of on-and-off talks as Yahoo tried to sell its stake. Money from the sale will help Yahoo appease its shareholders by giving it the financial firepower to return cash.
Yahoo said a joint statement with Alibaba that it plans to return "substantially all" of the after-tax cash proceeds to shareholders.
It said its share buyback programme had been increased by $5bn though a final decision on how to return the cash to shareholders had not been made.
The two companies also have an agreement for Yahoo to sell the remainder of its Alibaba stake in stages later on.
Yahoo's interim CEO Ross Levinsohn said the deal provides "clarity" for Yahoo shareholders.
The statement also indicates Alibaba may hold an initial public offering in the future.
A person with knowledge of the deal said there are incentives built into the transaction that would make it attractive for Alibaba Group to hold an IPO by the end of 2015.
Alibaba Chairperson and CEO Jack Ma said the deal establishes a "balanced ownership structure that enables Alibaba to take our business to the next level as a public company in the future."