capstone assignment

30-12 Case 30

Challenges

The privately ownedAlibaba Group was one of China's biggest Internet companies special-

izing in electronic commerce. In 2005,Yahoo invested $1 billion inAlibaba for a 40 percent

equity share. It also handed over the responsibility of operating its Yahoo! China Web site

to Alibaba. The two companies began negotiations in 2010 on the future of Yahoo's invest-

ment. Softbank, a Japanese Internet and telecommunications company, had also invested

in Alibaba. In addition, Softbank had a 65 percent stake in Yahoo ! Japan, with Yahoo own-

ing the rest. Alibaba and Softbank wanted to buy out Yahoo's stake in Alibaba as well as

its stake in Yahoo! Japan. While Yahoo agreed to the Alibaba divestment (it had made no

decision on the Yahool Japan issue), the bone of contention was in structuring the deal to

minimize Yahoo's tax bill on the capital gains. In late August 2)L2,Yahoo announced that

it would sell half its Alibaba investment immediately for $7.6 billion (resulting in after-tax

cash of $4.3 billion) and the rest when Alibaba was expected to go public in 2015.24 The

key challenge to Mayer in this area was how to use the proceeds of the Alibaba investment.

Early on, she had indicated that she would use the proceeds to make critical acquisitions,

but pressure from shareholders had caused her to back off from this position.

In addition to the Alibaba issue, Mayer faced the main strategic challenge of establish-

ing Yahoo's identity as a company. While it had started out as a technology firm, its princi-

pal revenue source was currently advertising. However, many Yahoo insiders still regarded

themselves as working for a technology company that had a presence in media. Daniel

Loeb's insistence that Yahoo's best bet was to find a way to monetize its visitor traffic in-

dicated that he wanted Yahoo to morph into a media company. Given Mayer's technology

background and experience at Google, would this morphing play to her strengths? The

growing markets were Asia and Africa, regions where Yahoo had only a weak presence.

Should Yahoo acquire companies to benefit from growth in these markets? In addition,

the Internet was moving to a mobile platform where Yahoo had only a marginal presence.

White the mobile platform was showing tremendous growth (albeit from a small base), it

was not clear whether it would support traditional revenue sources. Management faced

these issues prior to meeting with the company's board in September.

,aCharles Arthur, "Yahoo Sells Chunk of Alibaba Stake," The Guardian, September 19,2012, www.guardian

.co.uk/technologyt20l2lsepllglyahoo-efinance, accessed September 24,2012.