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Candy for Yahoo! Inc. (YHOO)’s Investors after Alibaba Group Holding Ltd (BABA)’s IPO

Yahoo! Inc. (NASDAQ:YHOO) is going to treat its investors with around $3 bilion after it sells 27% of its stake in Alibaba Group Holding Ltd (NYSE:BABA) during the IPO. CNBC‘s Josh Lipton reported on Yahoo! Inc. (NASDAQ:YHOO)’s plans and options on handling the hefty amount of cash that it is going to land itself.

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Lipton said that analysts at B. Riley & Co want to see this $3 billion spent on dividends and share buy-back programs. Sameet Sinha, who is a senior analyst at B. Riley & Co, expressed the same view in an interview on CNBC. He talked about how the synergy of the two approaches creates more value for the shareholders.

“A dividend gets some different type of investors into the stock. they are more sticky. They hold on to it for a while for the income potential and the share buyback supports the value of the stock in case a number of shareholders decide to sell it,” said Sinha.

It is estimated that Yahoo! Inc. (NASDAQ:YHOO) will earn around $6 billion after tax if Alibaba Group Holding Ltd (NYSE:BABA)’s IPO sells at around $68 per share, according to Lipton. Since Yahoo! Inc. (NASDAQ:YHOO) has promised to give its shareholders half of that return, the investors of the technology company can expect their share of the candy to be in the vicinity of $3 billion.

Alibaba Group Holding Ltd (NYSE:BABA)’s IPO comes at a time when Yahoo! Inc. (NASDAQ:YHOO)’s core business of advertising is in a bit of a struggling situation. Yahoo! Inc. (NASDAQ:YHOO) has options in terms of diversifying its revenue stream with the help of the money that it gets from selling some of its stake in Alibaba Group Holding Ltd (NYSE:BABA). Lipton said that there might be a couple of acquisition options that the management of the company has probably lined up to this end.

Yahoo! Inc. (NASDAQ:YHOO) will still maintain around 16%  stake in Alibaba Group Holding Ltd (NYSE:BABA) after the IPO to benefit from the success of the e-commerce giant in future.

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