Alibaba's IPO Could Put $15.4 Billion Into Yahoo's Pocket

With Alibaba officially headed toward an initial public offering, it’s finally time for Yahoo! to cash in.

For years now American investors have bought shares in Yahoo, which owns nearly a quarter of Alibaba, as one of the easiest way to bet on a bright star of the Chinese Internet industry. By some measures Yahoo’s non-Alibaba business accounts for only about 12 percent of its market value.

In a sense, the coming windfall from the IPO will be a legacy of Yahoo’s past glory. It first invested in Alibaba in 2005, paying a piffling $1 billion for a 40 percent share back when the Chinese upstart was after some Silicon Valley savvy. But those roles have pretty much reversed: Yahoo is now the remora to Alibaba’s megaladon.

As of today Yahoo owns about a 24 percent stake of Alibaba, a portion that could be worth as much as $37 billion, according to an average of analyst’s estimates compiled by Bloomberg News. Yahoo will experience its windfall as a mixture of cash and continued equity. Because of agreements between the two companies, Yahoo has to get rid of a significant portion of its holdings the minute Alibaba goes public, selling those shares at the initial price and missing out on the first-day market bump.

Kenneth Goldman, Yahoo’s chief financial officer, recently told investors that Yahoo would likely sell 10 percent of Alibaba and hold on to 14 percent. Such a sale would mean $15.4 billion in cash, added to the $5 billion in cash that Yahoo had as of the end of last year.