Alibaba will buyback half of Yahoo stake for $7.1bn

US internet company Yahoo said it has reached a deal to sell part of its stake in China's biggest internet company Alibaba Group.

Alibaba will buy back half the 40% stake owned by Yahoo, following years of negotiations.The deal will raise about $7.1bn (£4.5bn) for Yahoo, which has been losing ground to rival Google and Facebook in online advertising.The agreement also allows Alibaba to consider an initial public offering

Both companies revealed in a statement that Alibaba will pay Yahoo $6.3bn in cash and up to $800m in Alibaba preferred stock.

For Yahoo, the deal gives it the ability to pay dividends, make acquisitions, or buy back its own shares, something its stockholders have been asking for

"We look forward to delivering the proceeds of the near-term transaction to our shareholders," said Timothy R Morse, chief financial officer at Yahoo.