• by Mark Walsh  @markfwal, May 21, 2012

Yahoo has reached agreement to sell up to half its stake in Alibaba Group Holding Ltd. back to the China-based company for $7.1 billion following months of negotiation. Under the deal, Yahoo is selling up to half its 40% stake in Alibaba, including $6.3 billion in cash and $800 million in Alibaba preferred stock. After taxes, Yahoo is expected to yield $5 billion from the move.

Of the remaining 20%, Alibaba will be required either to repurchase one-quarter of Yahoo's current stake at the share price of a potential public offering of the Chinese Internet company, or allow Yahoo to sell those shares in the IPO. Following the offering, Yahoo also has the right to sell its remaining shares following the lock-up period.

Separately, Alibaba has agreed to pay Yahoo $550 million from the early termination of a technology and intellectual property licensing agreement as well as continuation royalty payments for up to four years. The Chinese company will also license certain patents to Yahoo and the latter will continue to hold a seat on the Alibaba board.

The deal comes as welcome news to Yahoo on the heels of the phony resume debacle that ended in ex-CEO Scott Thompson leaving the company last week after only joining the company in January. Yahoo last year made the sale of its Asian assets—its equity holdings in Alibaba and Yahoo Japan—a key goal to boost its financial position and focus on its core business.

With the appointment of interim CEO Ross Levinsohn to replace Thompson and a new board, analysts said the Alibaba deal would help Yahoo move forward. Levinsohn in a statement noted the agreement “provides clarity for our shareholders on a substantial component of Yahoo's value and reaffirms the significance of our relationship with Alibaba.” The Web portal has yet to divest itself from Yahoo Japan.