E-commerce giant Alibaba Group Holding Limited BABA announced a share purchase deal with Softbank Group on Tuesday.
Per the deal, Alibaba will buy from Softbank $2 billion worth of Alibaba Group shares outright using balance sheet cash. Another $5 billion worth of shares will be exchanged for securities that will convert to Alibaba shares in three years. In addition, $400 million in stock will be sold to an Alibaba partnership apparently comprising governing members of Alibaba’s board. Another $500 million worth of shares will be sold to an unknown sovereign wealth fund.
As part of the deal, Softbank also agreed that it will not transfer any Alibaba shares held by it for six months.
Softbank Group also disclosed this deal in a statement on the same day citing capital structure reforms and de-leveraging as the main objectives behind the deal. It will pay down debts from the capital obtained from the sale.
Softbank expects the deal to improve its interest-bearing debt/EBITDA ratio, increase its liquidity cushion and enhance efficiency of financial management.
This is the first time that Alibaba has purchased any of its shares owned by Softbank. Softbank is one of the earliest and the largest shareholders in Alibaba though, with this sale, its stake is now down from 32% to 28%.
Alibaba Executive Chairman Jack Ma said in a statement, “Under the leadership of Masayoshi Son, SoftBank has been a highly valued, long-time partner of Alibaba for more than 16 years, and we look forward to continuing our strong partnership together.”
At present, Alibaba is a Zacks Rank #5 (Strong Sell) stock. Some better-ranked stocks in the wider technology sector include PetMed Express, Inc. PETS, Netgear Inc. NTGR and Radcom Ltd. RDCM, each sporting a Zacks Rank #1 (Strong Buy).
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