Term Sheet

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

What Silver Lake deal means for Alibaba and Yahoo

September 22, 2011: 3:03 PM ET

Today's deal decreases the chances of an Alibaba Group IPO, but may boost the odds of a Yahoo takeover.

Silver Lake Partners announced today that it is leading a $1.6 billion investment in Chinese e-commerce giant Alibaba Group, alongside DST Capital, Yunfeng Capital and existing Alibaba shareholder Temasek. The deal is designed as a tender offer to provide liquidity for Alibaba employees, and values the company at approximately $32 billion.

More importantly, it seems to signal that an Alibaba Group IPO is a long ways off. Chairman Jack Ma, who participated with the investor group, suggested earlier this year that an IPO for the unlisted parent company was possible. But this deal seems to have removed the impetus for such a transaction, since Alibaba would have accessed the public markets for liquidity rather than capital. Silver Lake and its investment partners will no doubt need liquidity of their own one day, but that could mean five or six years from now. And, even at that late date, their exit could come via a share sale, either to a third-party or to the company itself.

Moreover, Silver Lake and DST will not have any voting rights at Alibaba following the tender, in order to comply with China's foreign ownership rules.

The flip side of this coin is Yahoo (YHOO), which acquired a 40% stake in Alibaba in 2005 for just $1 billion. Silver Lake reportedly has been considering an acquisition offer for Yahoo, which would be financially impossible were Yahoo's Alibaba position not simultaneously divested (Alibaba has first dibs, per terms of the original agreement).

Sources familiar with the situation say that today's deal has been in the works for months, and that it was not at all affected by the prospect of a Yahoo bid. "It would be irresponsible, and arguably a breach of fiduciary duty, to ask investors for hundreds of millions of dollars to help facilitate another deal that may or may not happen," one source said.

So Silver Lake's Alibaba deal time was driven by prospective IRR, not Yahoo. But what if we look at it from the other direction: Is Silver Lake's Yahoo deal team affected by Alibaba? Silver Lake has known about the burgeoning Alibaba relationship for a while, which perhaps makes them more confident than are other suitors that they could work out a divestiture. The whole thing still remains a long-shot -- Silver Lake's largest-ever deal was Skype, which was tiny compared to Yahoo -- but perhaps a bit more possible today than it was yesterday...

Sign up for my daily email newsletter on deals and deal-makers: GetTermSheet.com

Join the Conversation
About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

Email a Tip | @danprimack | RSS
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.