Yahoo Okays Initial Term Sheet to Sell Stakes Back to Asian Partners — While Also Hoping to Keep PE Firms in Fray
Yahoo shareholders felt a little giddier earlier this week, when it seemed as if the company had finally decided to make a deal with its Asian partners.
But the happiest crew might end up being the Silicon Valley Internet giant’s outside counsel, Skadden Arps — and especially Leif King, the fantastically named legal eagle who has been advising Yahoo on the deal.
That’s because today the Yahoo board approved continuing the negotiations to come to a final agreement over the stake, sources said, which should take six to eight weeks.
It’ll surely be happy holidays for billable hours!
As costly as the legal bills will be, if it all goes well, an Asian solution will mean one major problem solved, with a possible pile of cash and new assets coming in to Yahoo.
To get there, the company signed a term sheet earlier this week with Japan’s SoftBank to sell back all its holdings there, and with China’s Alibaba Group to sell off more than half its stake (moving from a 40 percent stake to a 15 percent one).
The deal values Yahoo’s total shares in both companies at about $17 billion.
While it gets a pretty accounting name — “cash-rich split “– the vehicle to unwind it all is essentially a complex tax dodge finally cooked up by the trio, in which cash, new assets and stock will be moved around until everyone gets what they want (except the U.S. government).
I would explain it — but I am on vacation, and would rather drink eggnog and sleep — so here is The Wall Street Journal’s version, which I like because it sounds like Alibaba and SoftBank are giving Yahoo a hugely loaded Starbucks card for Christmas:
“As envisioned in the scenario, Alibaba would create a subsidiary into which it would put several billion dollars of cash, plus an operating asset that Yahoo wants to buy using additional cash from Alibaba, almost like giving Yahoo a prepaid card for an asset of its choice, the people said.”
Everyone is hoping there will not be any hiccups in the deal, which has been spearheaded by Yahoo board member and Intuit CEO Brad Smith, and Jerry Yang, who is also the company’s co-founder and a major shareholder.
Alibaba CEO Jack Ma and CFO Joe Tsai, both co-founders of that company, were the point men for the Chinese company. And for SoftBank, it was its founder and CEO Masa Son and his main U.S. exec, Ron Fisher.
Now, said sources, Yahoo’s board is hoping to still keep the bids from a pair of private equity firms — Silver Lake and TPG Capital — alive.
While initially the focus on the action, the PE bidding for partial Yahoo stakes has recently been sidelined by the Asian deal.
Now, sources said, Yahoo is hoping the new infusion of cash and assets will allow it fend off shareholder unrest — stock buybacks and dividends, anyone — to solicit higher prices from the firms to make strategic investments.
Yahoo had considered the initial bids too low, as did some very pissed-off activist shareholders.
Still, it’s not clear if those firms will jack their offers now, although sources said Silver Lake is still interested in some sort of deal that would give it influence over remaking Yahoo.
Silver Lake and others think the long-troubled company could be revived with some effort, and become a much more lucrative Web property.
But those negotiations might run into roadblocks over who gets to pick leadership for the company. Yahoo has accelerated its efforts to hire a new CEO, after firing Carol Bartz in September.
The PE firms, who would buy a large stake in Yahoo, also have wanted some level of control, including CEO and board approval, in order to be able to make massive changes at the company to turn it around.
Wall Street seems to like the Asian part of the deal, at least, since it shows some sort of forward momentum at Yahoo, and from its often-lugubrious board.
Shares are up almost 7 percent in the last few days, although they are not popping as they might be, given that new valuations based on a successful Asian deal put the stock at a much higher price.
In other words, investors like what they see, but are watching and waiting for more.