Alibaba Said to Seek Financing From Temasek to Buy Back Stake From Yahoo

By Serena Saitto, Cathy Chan and Jeffrey McCracken - Oct 11, 2011 1:48 AM GMT+0700

Alibaba Group Holding Ltd. has talked with Singapore’s Temasek Holdings Pte about providing financing to buy out Yahoo! Inc.’s 40 percent stake, according to people familiar with the matter.

Temasek, the state-owned investment company, may help fund an offer in return for a bigger share of privately owned Alibaba Group, said the people, who declined to be identified because the discussions are confidential. Temasek isn’t interested in owning Yahoo, one person said. Yahoo’s stake in Alibaba may be worth about $13 billion, using a valuation by the Singapore investor last month.

Temasek’s backing would aid Alibaba Group Chairman Jack Ma’s bid to gain more control of the company he founded and increase Temasek’s investments in China. The S$193 billion ($147 billion) sovereign wealth investor said in July that it’s “bullish” on China and is seeking more deals there.

“As an existing investor in Alibaba, Temasek may be interested in increasing its ownership,” said Victor Yip, an analyst at UOB-Kay Hian in Hong Kong. “This is just one of the many proposals that are flying around involving Yahoo.”

Temasek valued Alibaba, China’s biggest e-commerce company, at $32 billion in an investment last month. In 2005, Yahoo paid $1 billion, together with its operations in China, to acquire its holding in Alibaba.

Interested Parties

The Alibaba-Temasek arrangement would likely be part of a possible takeover bid for Yahoo with private-equity firm Silver Lake and Russia’s Digital Sky Technologies, another person said. Alibaba, Silver Lake and DST have discussed forming a group to make an offer, Bloomberg reported last week, citing people familiar with the situation. Silver Lake has let Yahoo know of its efforts and is trying to line up financing to pursue the deal, the people said.

No clear deal structure or consortium has yet emerged, and a bid for Yahoo might not materialize, said the people.

“We don’t comment on market speculation,” said Stephen Forshaw, a spokesman for Temasek. Spokespeople for Yahoo and Hangzhou-based Alibaba declined to comment.

Microsoft Corp. (MSFT) may join the group of investors to safeguard its interest in Yahoo and bridge the financing gap a leveraged buyout would require now, said one of the people. Microsoft isn’t anywhere close to making an offer to acquire Yahoo on its own, two people familiar with the matter said last week. A spokesman for Microsoft declined to comment.

Yahoo’s Advisers

Yahoo turned down a $47.5 billion offer from Microsoft in 2008, rankling investors. The two companies later forged a 10- year agreement to outsource Yahoo’s search engine to Microsoft, diminishing the chance of a full acquisition. Since then, Yahoo has struggled to invigorate sales growth and beat back competition from Facebook Inc. and Google Inc.

Yahoo’s advisers at Goldman Sachs Group Inc. (GS) are sending out select financial data to certain parties, one person said. The company is not yet requiring interested parties to sign confidentiality agreements and hasn’t created a so-called data room where bidders could dig further into Yahoo’s business, said the person.

Other private-equity funds are considering an investment in Yahoo and more than one of group of investors might bid or split the assets of the Sunnyvale, California-based Internet company, said the people.

Financing Gap

Yahoo fired Chief Executive Officer Carol Bartz last month and started a review of its strategy. Last year, Bartz turned down efforts by Alibaba to buy shares held by Yahoo, straining relations with Ma, who said in May that the breakdown in the discussions undermined his confidence in Yahoo.

Alibaba, which operates businesses including Taobao, China’s biggest online shopping site, and the Alibaba.com commerce site for businesses, is always interested in buying Yahoo’s shares, Joseph Tsai, the Chinese company’s chief financial officer, said in May.

In July, Alibaba said it reached an agreement with Yahoo and another shareholder, Japan’s Softbank Corp. (9984), over compensation accruing to the spinoff of the Alipay affiliate, China’s most-used online-payment operator. The accord ended a four-month dispute centered on the 2010 transfer of Alipay to a private company owned by Ma, a transaction that Yahoo said lacked board approval.

Alibaba’s Ma said this month he’s “very interested” in Yahoo and has held discussions with the company and other potential buyers. Yahoo, the biggest U.S. Web portal, said in a September memo to employees that its advisers have fielded inquiries from “multiple parties” interested in unspecified options.

Alibaba’s Stock

Temasek, Silver Lake and DST offered to buy as much as $1.6 billion of Alibaba stock from the Chinese company’s employees last month, two people close to the situation said at the time. Temasek had 22 percent of its assets invested in telecommunications, media and technology, down from 24 percent the year before.

Alibaba.com Ltd. (1688), the Hong Kong-listed unit of Alibaba Group, fell 0.9 percent to HK$7.85 in Hong Kong today, while the benchmark Hang Seng Index (HSI) was little changed. Yahoo rose 30 cents, or 2 percent, to $15.77 as of 2:23 p.m. in Nasdaq Stock Market trading. The shares dropped 7 percent this year before today.

To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Cathy Chan in Hong Kong at kchan14@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; Tom Giles at tgiles5@bloomberg.net; Philip Lagerkranser at lagerkranser@bloomberg.net