Yahoo said it is selling up to half its stake in Alibaba Group back to the company.

Yahoo's relationship with Alibaba grew rocky last year when Alibaba transferred away ownership of its Alipay payments unit (see story). This transfer, which was done to comply with regulations in China, distanced Yahoo from a prominent payments business.

Yahoo invested $1 billion in Alibaba in 2005. Yahoo is selling up to half its stake, or about 20% of Alibaba's fully diluted shares, for about $7.1 billion, Yahoo said Sunday. That figure is based on the minimum share price for the full 20% stake.

Part of Yahoo's remaining 20% will be sold or repurchased when Alibaba goes public. Yahoo can sell the rest after a lock-up period following the initial public offering.

"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," said Ross Levinsohn, Interim CEO of Yahoo, in a press release. "We look forward to continued collaboration with the Alibaba team on business initiatives as we explore joint opportunities for growth and benefit from Alibaba's future."

Levinsohn took over as interim CEO after Scott Thompson left the company last week (see story). Thompson, who was previously president of eBay's PayPal unit, became CEO of Yahoo in January.

Thompson's arrival signaled that Yahoo might take a fresh look at building a payments business. Besides its involvement with Alipay, Yahoo also offered an online bill-pay service from 1999 to 2007.

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