Alibaba Group Holding Ltd., China’s largest e-commerce provider, agreed to repurchase about a 20 percent stake in itself from U.S. Web portal Yahoo! Inc. for about $7.1 billion.

Yahoo will receive at least $6.3 billion in cash and as much as $800 million in newly issued Alibaba preferred stock, the companies said in a statement Monday. Alibaba also will be required to either buy back a quarter of Yahoo’s current stake at the price of a future initial public offering or let Yahoo sell the shares in the IPO.

Alibaba has been trying to buy back the stake in itself for more than a year and stepped up efforts in September, when the U.S. company fired former Chief Executive Officer Carol Bartz. While the deal reduces Yahoo’s presence in China, the world’s largest Internet market, it may aid turnaround efforts as the Web portal competes with Google Inc. and Facebook Inc. for users and advertising dollars.

“The cash from a transaction will help Yahoo as it grapples with the challenges in its business,” Jim Tang, a technology analyst at Shenyin Wanguo Securities in Shanghai, said before the announcement. “While Alibaba is the clear leader in the Chinese e-commerce market, it’s been difficult for Yahoo to cash out of its investment, since Alibaba is not publicly traded.”

Yahoo interim CEO Ross Levinsohn stepped into the role this month after Bartz’s successor, Scott Thompson, resigned following an inquiry into his academic record. Thompson said in April that Yahoo was in active discussions with Alibaba about monetizing a portion of its stake.

Yahoo acquired about a 40 percent stake in Hangzhou, east China-based Alibaba in 2005 in exchange for $1 billion and ownership of Yahoo’s Chinese operations.

“The sale of half of Yahoo’s Alibaba stake would represent the partial achievement of a goal that has eluded Yahoo for years,” Clayton Moran, an analyst at Benchmark Co., said in an e-mailed statement. “It appeases shareholders, may give employee morale a much-needed boost, and starts CEO Ross Levinsohn’s term with a win.”

Yahoo, based in Sunnyvale, California, rose 3.7 percent to $15.42 at the close in New York on May 18. The shares have fallen 4.4 percent this year.

The two companies struggled to make headway on negotiations under Bartz, who failed to reach an agreement to let Alibaba Group buy back shares in 2010.

Fissures became public by January 2010 when Alibaba Group described as “reckless” Yahoo’s support for Google Inc., which tangled with Chinese authorities over the nation’s Web- censorship rules.

The rift widened in May of last year after the Web portal said the Chinese company spun off its online payment business without informing shareholders. Yahoo said it wasn’t consulted about the transfer of the Alipay unit to a company mostly owned by Jack Ma, chief executive officer of Alibaba Group.

It’s “inappropriate” for Internet companies in China to have high foreign ownership given the increasing regulations on overseas investments in the industry, Alibaba Group Chief Financial Officer Joseph Tsai said in May 2011.
In September, DST Global and Temasek Holdings Pte were among investors that agreed to buy shares of Alibaba in a transaction valuing the Chinese company at $32 billion, people familiar with the deal said at the time.

Silver Lake and Ma’s Yunfeng Capital were also part of the group that bought as much as $1.6 billion in stock from Alibaba employees, said the people.

Tokyo-based Softbank Corp. owns about 30 percent of Alibaba Group, operator of the Taobao online marketplace for consumers, and the Tmall Internet shopping site.

Taobao accounted for about 90 percent of China’s C2C, or consumer-to-consumer, e-commerce market in the third quarter of 2011, according to a Jan. 12 JPMorgan Chase & Co. report.

Yahoo considered a deal with Alibaba and Softbank that would cut its stake in Alibaba to about 15 percent from about 40 percent, a person familiar with the matter said in December. 

Alibaba Group “won’t rule out the possibility” of going public, Ma said in a letter to employees in June. In 2007, the company listed Alibaba.com Ltd. in a $1.7 billion offering in Hong Kong, then the biggest IPO for an Internet company since Google Inc.’s in 2004.

China’s e-commerce market may expand 42 percent to 1.1 trillion yuan ($174 billion) this year, according to JPMorgan. (Bloomberg)