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By Nadia Damouni and Kenneth Li
March 1, 2011 10:24 PM EST
Yahoo Inc is in advanced talks to exit its joint venture in Japan with SoftBank Corp, a move that could lead it to focus on reaching a decision on its China assets.
A deal to transfer Yahoo's 35 percent stake in Yahoo Japan to telecommunications company and investor SoftBank could come within a few weeks, people with knowledge of the discussions said. The public value of the stake is just under $7.5 billion.
A deal has not yet been reached and could yet fall apart, these people said.
If and when a deal is reached, Yahoo is likely to turn its attention to the China market, where it owns an estimated 40 percent stake in one of China's most prominent Internet companies Alibaba Group, the parent company of listed Alibaba.com, these people said.
There have been no recent negotiations between the two companies after an Alibaba spokesman said last September it had "moved on" from buying back Yahoo's stake.
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The intermingled ownership of Alibaba, and Yahoo Japan complicates the discussions. SoftBank also owns a stake in Alibaba.
"There is a triangular relationship between the three parties ... Anything that happens with Alibaba has to involve all three parties," one of the sources said.
The talks come as Yahoo Chief Executive Carol Bartz is under pressure to turn around the once mighty Internet company that has fallen behind in prominence and growth to Google and Facebook. A much hoped-for turnaround in Yahoo's internet advertising business following a splashy search advertising tie-up with Microsoft Corp has yet to materialize.
A sale of Yahoo's stake in the mature Japanese market would bring a cash infusion that could be viewed favorably by investors, analysts have said.
Leaving the fast-growing and massive China market would be more controversial. Western Internet companies have largely failed to crack the tough regulatory regime and home-grown rivals such as Baidu Inc.
The ongoing negotiation between SoftBank and Yahoo have turned up a number of potential deal structures, these people said.
To avoid paying a 38 percent tax bill, Yahoo is against a straight sale of the stake, whose market valuation is just under $7.5 billion.
Tax-free options being discussed include an asset swap, where SoftBank would acquire a stake in Yahoo, with which it would swap for Yahoo's Yahoo Japan stake. Another option is for Yahoo to set up a tracking stock giving its shareholders the ability to sell off the stock.
A plan to set up a tracking stock, which does not require the approval of SoftBank founder Masayoshi Son, is seen as negotiating leverage for Yahoo.
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