Alibaba IPO To Drop $9 Billion In Yahoo’s Lap

The Alibaba IPO is nigh. Next week the Chinese ecommerce company will start trading on the New York Stock Exchange and Yahoo will be one of the big beneficiaries.

The expected range of Alibaba’s share price is $60 to $66 but it could easily go higher depending on demand. And demand is expected to be very strong (to hysterical) for what will certainly be not only the biggest tech IPO but potentially the largest IPO in US history.

The “out of the gate” market cap for Alibaba is likely to be north of $150 billion.

Yahoo currently holds 22.5 percent of the company and is contractually only compelled to sell 140 million shares (a fraction of its interest). The total value of Yahoo’s stake in Alibaba, based on the anticipated share price is roughly $33 billion and the pre-tax value of Yahoo’s required minimum share sale translates into roughly $9 billion.

Yahoo CEO Marissa Mayer has pledged (and will face pressure) to return a big chunk of the after-tax proceeds to Yahoo shareholders — up to 50 percent. But that could still leave $3 billion as after tax “mad money” for acquisitions and internal investment. (What strategic prize(s) will she go after?)

After the IPO Yahoo will still retain an Alibaba stake that could be worth more than $25 billion. Yahoo’s market cap is $41 billion in significant part because of its interest in Alibaba.

Roughly 80 percent of online shopping in China happens on Alibaba. Including its various other businesses, the company had total sales of nearly $250 billion in 2013. By comparison Amazon’s gross revenues for 2013 were just under $75 billion.