Six years after Yahoo! Inc paid over $1 billion to emerge as the biggest investor in Alibaba Group Holding Ltd, the struggling US internet giant is selling up to half of its stake in the Chinese e-commerce company for $7.1 billion.
 
Under the deal announced yesterday, Yahoo will sell 20 per cent stake in Alibaba back to the Chinese company for $6.3 billion in cash and take Alibaba preference shares worth $800 million.

Yahoo will sell an additional 10 per cent of the Chinese company when Alibaba files for an initial public offering, which could come in the next few years. Yahoo said that it expects to sell the remainder of its stake at a later date.
 
Yahoo can opt to hold on to the last 10 per cent of its stake or sell it to Alibaba at the market price after the Chinese firm becomes a publicly traded company, the companies said in a statement.

Yahoo will also get an additional $550 million from the early termination of a technology and intellectual property licensing agreement between the two companies and receive royalty payments from Alibaba for up to four years.

Yahoo, the struggling Internet media company, which has changed three chief executives over three years, plans to hand part of the sale proceeds to its shareholders.
 
The deal would net Yahoo around $4 billion after taxes, and the company said that it would increase its share buyback plan by $5 billion as part of the transaction.

The deal ends two years of rocky relationship between the companies with Alibaba reclaiming part or the entire 40 per cent stake held by Yahoo, which the American firm has refused.
 
The two firms have had an uneasy relationship, with Jack Ma wanting to buy back Yahoo's stake in order to regain more to regain more control of the company he founded 13 years ago.

The relationship came to a head a year ago when it was revealed that Alibaba had transferred the assets of its online payment unit Alipay - one of Alibaba's crown jewel, to a Chinese company controlled by Alibaba founder and CEO Jack Ma, without Yahoo's knowledge.

In September 2011 Alibaba refused to yield a board seat to Yahoo's then CEO Bartz, though according to a 2005 agreement between the two companies Yahoo was entitled to two seats on Alibaba's board.

After months of negotiations, talks over the possible sale of Yahoo's stake in Alibaba reached an impasse, but Joseph Tsai, Alibaba's CFO, restarted negotiations with Scott Thompson, then Yahoo's newly appointed CEO.

The conclusion of the deal again got delayed due to the removal of Thompson after a dissident shareholder exposed his padded résumé.
 
Hangzhou-based Alibaba is expected hold an initial public offering by the end of 2015 with a valuation of $35 billion.
 
Jack Ma said the deal established a "balanced ownership structure that enables Alibaba to take our business to the next level as a public company in the future."
 
''Today's agreement provides clarity for our shareholders on a substantial component of Yahoo's value and reaffirms the significance of our relationship with Alibaba,'' Ross Levinsohn, Yahoo's interim chief executive, said in a statement.

After the exit of its CEO Carol Bartz in September 2011, Yahoo has been in talks with several private equity firms for the sale of its Asian assets that are valued at between $11.5 billion - $17 billion. Yahoo also owns 35 per cent of Yahoo Japan, while the remaining is held by Japanese internet firm Softbank. This stake is estimated at $5 billion.