Under the yet-to-be-finalized deal, Alibaba would use borrowed money and internal cash as well as an asset swap to buy back most of a 40 percent stake that Yahoo owns in Alibaba Group, the sources said.
Alibaba.com shares were halted from trading on Thursday pending an announcement regarding its parent.
Yahoo’s stake in Alibaba Group has an estimated value of $14 billion. Under the plans being discussed, Alibaba Group wants to buy back about 25 percent of its stake. Alibaba Group plans to pay one-third of the consideration through a stake in one of its operating assets and the rest through cash.
Alibaba.com is the most likely operating unit in which Yahoo may be offered a stake, one of the sources said. Both parties have an understanding on this arrangement, but have not signed any formal deal yet, the source added.
The sources declined to be identified as the discussions were private. An Alibaba Group spokesman declined to comment.
Yahoo is choosing this route as it wants to achieve tax efficiencies, sources have said previously.
Alibaba Group, founded by former English teacher and now billionaire Jack Ma, is looking to raise a loan of about $3 billion, which will be partly used to fund the buyback and the privatization.
Alibaba Group currently owns about 73 percent in Alibaba.com, which has a market value of nearly $6 billion.
(Reporting by Prakash Chakravarti; Additional reporting by Stephen Aldred, Kazunori Takada, Saeed Azhar and Melanie Lee; Writing by Denny Thomas; Editing by Mark Bendeich and Muralikumar Anantharaman)