|Yahoo to Consider Sale of Asian Assets |
By EVELYN M. RUSLI and MICHAEL J. DE LA MERCED
New York Times
December 21, 2011, 3:25 pm
8:18 p.m. Updated
The board of Yahoo is considering a sale of the bulk of the company’s valuable holdings in the Alibaba Group of China and Yahoo’s Japanese affiliate back to their majority owners in a complicated transaction that values the stakes at about $17 billion, according to people briefed on the matter.
Yahoo’s board is expected to meet Thursday to discuss the broad outlines of the offer. If directors approve the plan, they may also decide to reject separate investment proposals by Silver Lake and TPG Capital that would have given control of the company to the private equity firms and Yahoo’s management, said some of these people, who, like the others contacted for this article, spoke on condition of anonymity.
By reducing its investments in Asia — which many investors had considered the company’s crown jewels — Yahoo would get a big cash infusion at a time when it was trying to revive its core United States operations, which have long suffered from declining revenue and an exodus of senior employees. While Yahoo has failed to keep up with the surging popularity of Internet rivals like Facebook, it still runs one of the most popular portals on the Web, with more than 113 million users a month.
The proposal values Yahoo’s 40 percent in Alibaba at about $12 billion and its 35 percent stake in Yahoo Japan at about $5 billion. It could be executed either as a stand-alone deal or alongside a minority investment in Yahoo by Silver Lake or TPG.
Yahoo is expected to keep a 15 percent stake in Alibaba, allowing it to hold on to a piece of the fast-growing Chinese Internet company, one of the people briefed on the matter said.
While the stakes in the two companies have long been seen as attractive, any deal has faced hurdles. The Asian partners have rights that effectively control to whom Yahoo can sell its holdings. And an outright sale would have significant tax implications.
But the proposed deal — called a tax-free cash-rich split — would not be considered a sale under Internal Revenue Service guidelines but rather a kind of asset swap, allowing Yahoo and its Asian partners to avoid taxes.
Under the terms of the deal, Alibaba and Softbank, Yahoo Japan’s majority owner, would create new subsidiaries that would consist of both cash and operating assets that Yahoo would like to run. Yahoo would then swap out most of its stake in Alibaba and all of its stake in Yahoo Japan for these subsidiaries, effectively selling those holdings.
The deal is valued at close to $14 a Yahoo share, the people briefed on the matter said.
Shares of Yahoo, which had been trading lower for most of Wednesday, jumped after the proposed deal was first reported. The stock closed up 5.8 percent, at $15.99.
Although Yahoo’s board may still choose to reject the offer or delay its approval, momentum seems to be building for a deal with its Asian partners, which could be completed in about a month.
A deal would be another significant shift in strategy by Yahoo, which has changed course several times since it abruptly ousted its chief executive, Carol A. Bartz, in September. In recent months, the board has entertained approaches from a broad swath of suitors.
Just a few weeks ago, the company appeared to be leaning toward the sale of a minority stake to private equity investors. Separate groups led by Silver Lake and TPG made bids to acquire stakes of roughly 20 percent, with Silver Lake offering about $16.60 a share and TPG about $1 a share more, two people briefed on the matter previously said. Both proposals involved a share buyback and an alignment with stakes owned by Yahoo’s co-founders, Jerry Yang and David Filo, that would effectively give the winning group majority control.
Despite initial support by the board, those proposals have been harshly criticized by shareholders, who are concerned that such a deal would dilute their holdings and concentrate too much power with a new investor group.
Against this backdrop, Yahoo restarted talks three weeks ago with Alibaba and Softbank, which had submitted an initial proposal in October. During the negotiations, the two sides agreed to raise the valuation of the Asian assets and to let Yahoo hold on to a small piece of Alibaba, one of these people said. Alibaba executives, including its chief financial officer, Joseph Tsai, have been in New York since Sunday to handle negotiations, two people said.
Spokesmen for Yahoo and Alibaba declined to comment.
Yahoo’s board has not yet dismissed the proposals from Silver Lake and TPG, according to some of the people briefed on the matter, but it will most likely pursue an independent path if it accepts the offer from Alibaba and Softbank. Some on Yahoo’s board say they believe the company will be better positioned — once it gets a cash infusion — to appoint a new chief executive and reconfigure its board.
Still, two of these people warned that no outcome was certain because the board had been splintered on several issues throughout the process, including Yahoo’s identity and how it should operate in the future.
But a failure by the board to reach a consensus could goad Yahoo’s Asian partners into going hostile. Both Alibaba and Softbank are keen to reclaim the stakes. Should the board reject the deal for the Asian holdings, the two companies are prepared to bid for all of Yahoo in conjunction with private equity partners, one of the people briefed on the matter said.
While Yahoo, Alibaba and Softbank have been closely linked since 2005, their relationship has often been tense. This summer, Alibaba settled a dispute on Alipay, an online payments company that Alibaba’s chief, Jack Ma, spun out of Alibaba last year, without clear approval from Yahoo and Softbank.