Yahoo Bidders Come in at $16.50 to $17.50, With Plan to Keep Jerry Yang on Board
Last night, Yahoo’s board gathered for a pre-meeting dinner, a precursor to a day-long meeting today to weigh several bids from private equity firms to buy part of the Silicon Valley Internet giant, including Silver Lake and TPG Capital.
Among the thorniest of issues will be the low price that the firms want to pay for a 19.9 percent stake in the company. Silver Lake has offered $16.50 and TPG a dollar more.
In the past year, Yahoo share prices have seen a low of $11.09 and a high of almost $19. It closed yesterday at $15.70 — a price that is mostly due to sale rumors — making the offers not much of a gain on current market valuation.
The transaction type being contemplated is called a PIPE — or a Private Investment in Public Equity — with the investment below 20 percent, which allows Yahoo to avoid a shareholder vote on the issue.
While the Yahoo board had hoped for bids above $20, they are not expected to be forthcoming, considering the weakness in its business over recent years and the difficulty of returning it to health and growth.
Results in its upcoming quarter, for example, are expected to be weak again, with trouble in its advertising business, largely due to uncertainty around the business.
The low price, along with the attempt to bypass shareholder approval, is sure to infuriate Yahoo’s major investors, given they have watched the value of their stakes wilt over the years under current board management.
In the last five years, due to continually muddled leadership and the missing of key Internet trends, Yahoo shares have dropped 44 percent in value, which compares with huge gains from companies like Amazon and others.
Major Yahoo stakeholders are already irked by the PIPE idea itself, which could transfer power to private equity firms at preferential terms.
Another possible bone of contention will be the preservation of at least some parts of Yahoo’s current board.
Under a plan by Silver Lake, for example, it would get three board seats, as well as another one for a CEO of its choosing. Another seat will go to Yahoo co-founder and current board member Jerry Yang. There will be six independent board members, but it is not clear if they would be new or include some current directors.
One of the Silver Lake choices would be well-known Silicon Valley legend Marc Andreessen, who is now a powerful VC. The appeal of Andreessen is important to some major shareholders who have turned sour on Yang.
Who will be CEO of the rejiggered entity will also be discussed at the meeting. Sources said Silver Lake and TPG have definite candidates in mind and Yahoo has also been conducting an official search.
In other words, there’s a lot on the plate of Yahoo’s board today, which also needs to revisit continued proposals from its Asian partners — China’s Alibaba Group and SoftBank of Japan — to sell back its stakes in Alibaba and Yahoo Japan in various tax-free schemes.
Sources said Yahoo — which has thus far rejected such efforts — might now consider selling a part of their shares back, up to half. This would allow the company to give a cash dividend to its disgruntled shareholders.
If thwarted, as has been previously reported ad nauseum, Alibaba and SoftBank are considering their own bid with the help of other U.S. private equity firms, such as Blackstone.
Other PE firms — especially ones who have not signed Yahoo’s non-disclosure agreement related to any deal — are also hanging under the hoop, so to speak, to see what happens. At least one firm hopes the Yahoo board will reject the low-priced partial bids, leaving the court wide open again.
“It’s still anyone’s game,” said one possible bidder.
Except for Yahoo’s put-upon employees and shareholders, this is anything but fun. More on that soon.