Alibaba said it paid Yahoo about $6.3 billion in cash and $800 million in preferred shares in Alibaba Group. It also made a one-time cash payment of $550 million in connection with an amendment to the two companies' intellectual property license agreement.

Separately, Yahoo said it will return to shareholders $3 billion of the $4.3 billion of after-tax proceeds from the sale. This is in addition to the $646 million downpayment that it has already returned to its shareholders through buybacks.

Yahoo continues to own about 23 percent of Alibaba's common stock, valued at $8.1 billion, the U.S. internet company said. Together with preferred stock, its stake is valued at about $8.9 billion, Yahoo said.

Yahoo owned about 40 percent of Alibaba Group before Tuesday's transaction.

Alibaba said it has the right to buy back half of Yahoo's remaining stake at the time of the Chinese company's planned initial public offering.

Alibaba, which reached an agreement with Yahoo in May to buy back its shares, took its business-to-business e-commerce platform Alibaba.com private for $3 billion in June.

"The completion of this transaction begins a new chapter in our relationship with Yahoo," Alibaba CEO Jack Ma said.

Yahoo originally acquired its stake in Alibaba Group in 2005 in exchange for $1 billion and the sale of its Yahoo China business to Alibaba Group.

Alibaba received $1 billion in funding from eight international banks including Barclays Bank, Citi, Credit Suisse, Deutsche Bank and Morgan Stanley and another $1 billion from China Development Bank.

It raised the remaining funds through an issue of convertible preferred shares and ordinary shares to investors such as CIC International Co Ltd, Boyu Capital, Temasek Holdings Pvt Ltd and DST Global.

(Reporting by Sayantani Ghosh & Aurindom Mukherjee in Bangalore; Editing by Don Sebastian and Sreejiraj Eluvangal)

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