Wielding a Sword of Damocles, Yahoo’s Asian Partners Await Answer on Yet Another Proposal to Buy Back Shares
There were a lot of furious rumors earlier this week that Yahoo’s longtime Asian partners — the Alibaba Group and SoftBank — were poised to lob a $25 billion takeover bomb at the Silicon Valley Internet giant to get back big stakes it holds in their companies.
Though last week’s reports were overblown and premature, it certainly might come to that at some point if past is prologue — Alibaba CEO Jack Ma has declared his interest publicly a number of times and has certainly been busy lining up his financial and strategic partners to do so.
This is one very sharp sword of Damocles hovering over Yahoo that could drop at any time and very quickly. It has impact, too, because every day there are unsettling Wall Street whispers that the bid is coming — I got three today, in fact, that it would happen Monday.
Actually, the day it is most likely to happen is the moment after Yahoo once again turns down the pair’s latest offer to buy back their shares in a complex tax-free transaction.
This has been a multi-year effort on the part of the trio, one littered mostly with recrimination and tears. Lots and lots of tears.
But this time, it’s critical to the Asian partners to strike the deal with Yahoo — and before its current board does another deal with current private equity bidders it is now contemplating.
Because once new leadership is in power, Ma’s leverage goes buh-bye. Now, it is a quantum level higher with the old Yahoos than with the next ones, who will have much more control and power over the company.
Thus, the threat of a possible whole company bid at a higher prices — a tasty treat to disgruntled shareholders — keeps the pressure on Yahoo’s current directors not to make a partial deal that is considered wanting.
This bird in the hand is seen as critical to Alibaba and SoftBank, who want only to get back their stakes and not to engage in what would turn into an ugly and hostile battle for control of all of Yahoo.
As one source told me last week: “The threat of a takeover is more useful than the damage an actual takeover would cause for everyone. No one wants this to be unfriendly.”
Perish the thought!
Yahoo board member Brad Smith — who is Intuit’s CEO and president in his spare time — has become the key man in this whole complex sales process and has also taken up the central role in dealing with the Asian proposal, along with Yahoo’s interim CEO, Tim Morse, and its legal head, Mike Callaghan.
They have to wrangle what to do with Yahoo’s 40 percent stake in Alibaba and a 35 percent holding in Yahoo Japan, which makes up a great deal of the company’s value and has become its most vexing Gordian knot.
Still, after a number of previous efforts failed miserably, Alibaba and Softbank brought yet another proposal to Yahoo in early October that would spin off the stakes to them and also avoid a big tax bill.
The sides have been talking on and off amid the other noise at Yahoo of late, which this week centered on low-priced bids for a partial investment in Yahoo from two separate PE firms, Silver Lake and TPG Capital.
Now what Yahoo does with its Asian assets matters to them, too, as both have their own plans for the dispensation of those stakes as key elements of their deals.
So it is not clear what would happen if the Alibaba and SoftBank shares were sold before either deal was done.
But it is unlikely to be a positive thing.
“The Asian assets are downside protection if the core Yahoo business is melting faster than anyone thinks,” said one person. “Without it there, Yahoo might be a lot more risky to buy into.”
Like, you might say, trying to catch a falling knife.