Bloomberg News

Silver Lake Said to Review Yahoo Deal With Alibaba, DST

October 04, 2011

(Updates shares in sixth paragraph.)

Oct. 4 (Bloomberg) -- The private-equity firm Silver Lake, Alibaba Group Holding Ltd. and Russia’s Digital Sky Technologies are discussing a possible joint bid for Yahoo! Inc., three people with direct knowledge of the matter said.

The group contacted Yahoo and its advisers in recent weeks to inform them of a possible offer, said one of the people, who declined to be identified because the talks are private. The discussions are still at an early stage and it’s not certain that the group will agree to make a bid, the people said.

Alibaba Chairman Jack Ma said last week he is “very interested” in buying Yahoo, six years after selling a 40 percent stake in China’s biggest e-commerce company to the owner of the most-visited U.S. Web portal. Yahoo is reviewing its strategy to revive growth and attract more users after firing Chief Executive Officer Carol Bartz last month.

“One of the major motivations for Jack Ma to buy Yahoo is for him to increase his ownership of Alibaba,” said Muzhi Li, an analyst at Mizuho Securities in Hong Kong. “If Yahoo is being taken over by an international consortium from China and Russia, the deal will be scrutinized by U.S. agencies very seriously.”

Dana Lengkeek, a spokeswoman for Sunnyvale, California- based Yahoo, declined to comment.

Yahoo rose 50 cents, or 3.7 percent, to $14.03 at 9:49 a.m. New York time on the Nasdaq Stock Market. The stock had dropped 19 percent this year before today.

U.S. Regulators

Ma had discussions with Yahoo, as well as other potential buyers, without identifying them, he said on Sept. 30.

“We are very interested in Yahoo because our Alibaba Group is so important to Yahoo, and Yahoo is also very important to us,” Ma said at the time. “There are so many people who are interested in that, and we are also talking to them.”

Silver Lake, Alibaba and DST are girding for potential opposition from U.S. regulators to foreign ownership of a company that handles communications, one person said.

In 2008, China’s Huawei Technologies Co. dropped a bid for Marlborough, Massachusetts-based computer-equipment maker 3Com Corp. after the U.S. government began investigating whether a deal would give China access to technology used by the Defense Department.

The Committee on Foreign Investment in the United States, an interagency committee of the U.S. government known as CFIUS, had planned to block the sale of 3Com Corp., Bain Capital Partners LLC, Huawei’s partner on the bid, said in March 2008.

Potential Opposition

Regulators may oppose foreign ownership of a company such as Yahoo, which plays a crucial role in U.S. communications through the delivery of e-mail and instant messaging. The company also serves as the second-largest U.S. search engine, through a partnership with Microsoft Corp. The deal would face tax implications as well because of Yahoo’s stakes in Alibaba and Yahoo Japan Corp., one person said.

Yahoo advisers are receiving inquiries from “multiple parties” interested in various unspecified strategic options, according to a memo to employees from co-founder Jerry Yang last month.

“Our advisers are working with us to develop ideas that we will pursue proactively,” according to the memo, which was obtained by Bloomberg News. “They are fielding inquiries from multiple parties that have already expressed interest in a number of potential options.”

Bartz Rankles

Investment bank Allen & Co. has examined various scenarios for Yahoo, a person familiar with the situation said last month.

People involved in the deliberations said last month that Silver Lake was considering a bid for Yahoo. As part of a deal, the private-equity firm would sell off Yahoo’s Asian assets and then attempt to turn around the main operations or find a buyer for that business, the people said.

As CEO, Bartz rankled investors with her handling of Yahoo’s assets in Asia, including the Alibaba stake. She feuded publicly with Ma, who spun off one of his company’s most valuable assets, the Alipay payment business, without compensating Yahoo shareholders until later.

When Yang was CEO in 2008, Yahoo spurned a $47.5 billion offer by Microsoft. The two companies later struck an agreement to outsource Yahoo’s search technology to Microsoft, diminishing the chance of a takeover. Yahoo now has a market value of $17.1 billion.

The AllThingsD technology blog previously listed Silver Lake, Digital Sky and Alibaba as potential bidders for Yahoo.

--With assistance from Brian Womack in San Francisco and Cristina Alesci and Serena Saitto in New York, and Mark Lee in Hong Kong. Editor: Nick Turner, Jillian Ward.

To contact the reporters on this story: Douglas Macmillan in New York at dmacmillan3@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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