China's Alibaba-Led Group Said to Prepare Yahoo Bid ...

Jack Ma, Chairman and CEO of Alibaba Group, delivered the closing keynote address at the conference "China 2.0: Transforming Media and Commerce", hosted by the Stanford Program on Regions of Innovation and Entrepreneurship (SPRIE) at the Stanford Graduate School of Business, on Sept. 30, 2011.

November 30, 2011

Alibaba-Led Group Said to Prepare Yahoo Bid

Alibaba Group Holding Ltd. and Softbank Corp. (9984) are in advanced talks with Blackstone Group LP (BX) and Bain Capital LLC about making a bid for all of Yahoo! Inc., said three people with knowledge of the matter.

A bid may value Yahoo at more than $20 a share because of tax savings tied to the Internet company’s stakes in Alibaba and Yahoo Japan, said two of the people, who declined to be identified because the discussions are private. Yahoo shares advanced 6.9 percent to $16.79 in extended trading.

Yahoo’s board is meeting to discuss offers it received for a minority stake in the Sunnyvale, California-based company from bidders including TPG Capital and a group led by Silver Lake, people familiar with the matter said this week. Silver Lake’s bid valued Yahoo at about $16.60 a share, these people said. TPG Capital’s offer was higher, they said.

Some Yahoo investors say they would prefer the company be sold in its entirety, at a higher price. “It definitely has to be much higher than $16.60,” said Di Zhou, a Santa Fe, New Mexico-based analyst at Thornburg Investment Management, which oversees about $80 billion in assets, including Yahoo shares.

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While the Alibaba group has prepared financing for a possible offer, it hasn’t decided on a final price or whether to proceed, the people said. The group would prefer to be invited to bid rather than going hostile, one person said. Alibaba hasn’t informed Yahoo of its possible bid, this person said.

No Decision Yet?

“Alibaba Group has not made a decision to be part of a whole-company bid for Yahoo,” John Spelich, a spokesman for Hangzhou, China-based Alibaba, said in an e-mailed statement.

At $20 a share, Yahoo would be valued at 24.1 times earnings in the past 12 months, data compiled by Bloomberg show. That would compare with 20.4 times for Google Inc. (GOOG) and a ratio of 9.5 for Microsoft Corp.

Yahoo shares rose 1 cent to $15.71 yesterday at the close in New York. The stock has fallen 5.5 percent this year.

The $20 price tag would undervalue the company because its Asian assets have so much growth potential, said Thornburg’s Zhou, who puts the value at about $25 a share. Yahoo, the largest U.S. Internet portal, owns about 40 percent of Alibaba, the top e-commerce site in China, and 35 percent of Yahoo Japan.

Zhou wants to see Yahoo hold on to the Alibaba stake until the Chinese company can hold an initial public offering, providing a windfall to investors.

“Chinese Internet penetration and e-commerce is going well,” she said. “It should be more valuable by the day.”

Chinese Growth

Total Internet users in China may grow 27 percent this year, with the number of online shoppers climbing 28 percent, according to Thornburg.

Alibaba is seeking to buy back the stake in its company that Yahoo owns. Softbank, meanwhile, wants to acquire the stake in Yahoo Japan, one of the people familiar with the matter said.

In the proposed deal, Blackstone and Bain would take control of the U.S. operations, the person said.

Spokeswomen for Blackstone, Softbank and Yahoo declined to comment.

Alibaba Chief Executive Officer Jack Ma said in October that his company is interested in purchasing Yahoo. Earlier attempts by the Chinese e-commerce leader to buy out Yahoo’s stake faltered amid disagreements with former CEO Carol Bartz. Yahoo acquired the Alibaba stake for about $1 billion in 2005.

While Alibaba is in advanced talks with Blackstone and Bain, the company is also in discussions with other private- equity firms, including Providence Equity Partners Inc., about an offer, one person said.

Ken Sena, an analyst at Evercore Partners Inc. in New York, puts Yahoo’s total value at about $18 a share, with $5 coming from the U.S. Internet business. The so-called off-balance-sheet assets -- including the Asian investments -- are worth $11 a share, plus $2 in cash, he said. By buying the whole company, Alibaba would avoid having to negotiate over how much Yahoo’s main business is worth, Sena said.

“Almost two-thirds of the enterprise value is really these off-balance-sheet assets,” he said.

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