Back in 2005, Jerry Yang wisely invested $1 billion into the company for a 40% stake. Some have bemoaned the fact that Yahoo! still doesn't own 40% of the company today. If it did, and Alibaba was able to get a $200 billion valuation -- as some think they will -- that 40% stake would have been worth $80 billion (pre-tax, of course). Yahoo!'s entire market cap today is around $36 billion.
Instead, two years ago, Yahoo! decided to sell down its 40% stake to 24%. The problem for Yahoo! shareholders is that Yahoo! did so while valuing Alibaba at only $35 billion.
Did Yahoo!'s board make a big mistake by selling down its stake? To some extent, yes. Softbank owned 37.5% of Alibaba three years ago and never felt it was important to sell down its stake. It owns the same amount today and will reap the benefits upon the IPO.
However, Alibaba clearly wanted to buy back some of its stake two years ago. Had Yahoo! not sold, Alibaba could have continued to stonewall the idea of holding an IPO. The deal certainly seemed to grease the skids to get an IPO moving.
So, even though I -- as a Yahoo! shareholder -- wish it had been able to hold on to a big stake of Alibaba, if I get upset I remind myself of an important fact: Given how bad Yahoo!'s board was a few years ago, it's a blessing Yahoo! kept a hold of this Alibaba stake at all.
Just think: A few years ago, Yahoo! had the worst corporate board in America. There was Roy Bostock as the Chairman and Patti Hart -- now CEO of International Game Technology (IGT) -- as his sidekick.
Roy Bostock was, of course, on the Yahoo! Compensation Committee that decided to pay Terry Semel over $600 million in total compensation over six years.