Exclusive: Yahoo Asia Deal Talks Off for Now
According to sources close to the situation, the discussions between Yahoo and its Asian partners have hit a potentially deal-breaking impasse over the efficacy of the centerpiece of the complex negotiations — a cash-rich split-off — and several other issues.
Sources said talks have halted for now over an arrangement with China’s Alibaba Group and Japan’s SoftBank, designed to save the Silicon Valley Internet giant over $4 billion in U.S. taxes. The deal values Yahoo’s lucrative stakes in Alibaba and Yahoo Japan at around $17 billion.
Of course, such volatility is part of any complicated negotiation. This one is a doozy, and on a global scale.
Thus, progress could resume at any time and could manifest itself in a different manner, such as a taxable transaction.
Teams from all sides were just in Hong Kong this week in the latest round of discussions, which seems to have spurred the new issues, which include over-valuation.
“Getting to the promised land has been very hard,” said one person close to the situation, noting that there have been several increasingly challenging parts of the deal.
That includes all the frantic machinations around the talks, which have — to be fair — broken down significantly before, including around the holidays.
Those have gotten back on track, but sources on all sides noted there has been a toll as the agreements have gotten more advanced.
“The cumulative effect of all the disagreements of a deal already on the edge has not helped matters,” said one person.
In addition, as I have previously noted, time is brain, and circumstances at Yahoo and in Asian have shifted a great deal since the talks began in the Fall. Yahoo has a new CEO, Scott Thompson, and has just had an important board shake-up, even as the value of its Asian stake has increased.
It is also not clear if the problems are limited to just the part of the deal with Alibaba, or with both partners. But several sources on the Asian side said that Alibaba and SoftBank are aligned closely on completing a joint deal, for which Alibaba has been negotiating loans to complete.
Now, those sources are characterizing the talks as completely stopped, blaming Yahoo negotiators for suddenly shifting course on what they want from the arrangement.
“The cash-rich deal seems dead now,” said one source.
For its part, sources close to Yahoo said that it has not walked away from discussions, noting this might be a ploy on the part of its Asian partners, although they did acknowledge that there have been increasing difficulties coming to an agreement.
Still, they stressed that Yahoo was committed to trying to do some sort of deal, and the latest problems might only signal a temporary retrenchment. Yahoo is likely to make some sort of statement on the issue soon.
The collapse of talks is still sudden, since negotiations had been moving forward, if glacially, with definitive agreements in draft and contemplation of possible properties to include in the deal. That’s because the cash-rich split-off requires part of the agreement be made up of operating assets.
As you can see here, in a Wall Street Journal chart, it’s a pretty complicated deal:
And, in his goodbye letter upon announcing his pending departure as chairman of Yahoo, while publicly acknowledging them, Roy Bostock did note the possibility of the talks not working out because of that.
“We are also in active discussions with our partners in Asia regarding the possibility of restructuring our holdings in Alibaba Group and Yahoo! Japan. The complexity and unique nature of these transactions is significant. While we continue to devote significant resources to these discussions, we are not in a position at this time to provide further detail or to provide assurance that any transaction will be achieved.”
That will likely be a disappointment to investors, who have bid up shares in anticipation of such a deal occurring. Yahoo’s stock is now trading in the $16 range, well up from earlier this year.
(Update: Yahoo shares dropped significantly since my report, down more than 5 percent now, with Wall Street giving any end to the talks a thumbs-down.)
The situation could now land on the already heavy plate of Yahoo’s new leader, Thompson, who has been dealing with a number of pressing issues at the company since he arrived last month.
Welcome to the dollhouse, Scott!
More to come, of course.
And, for the record, no comments all around. (But I tried!)