Yahoo Dips as Company Said to Reject Sale

By Serena Saitto, Jeffrey McCracken and Brian Womack - Nov 1, 2011 4:15 AM GMT+0700

Yahoo! Inc. shares dropped the most in more than two months after the company was said to be leaning toward selling its Asian assets and redistributing the proceeds to shareholders, rather than selling itself to a group of buyers.

This scenario is emerging as the most likely option for Yahoo and would let the Internet company eventually pay a special dividend or buy back shares, according to five people familiar with the situation, who declined to be identified because the talks are private.

The shares declined 5.6 percent to $15.64 at the close, the biggest drop since Aug. 4. Before today, the stock had surged 28 percent since the company fired Chief Executive Officer Carol Bartz in early September, making it a more expensive target for private-equity buyers, the people said last week.

Yahoo has been exploring options while searching for a replacement for Bartz, who struggled to boost revenue growth or fend off competition from Google Inc. and Facebook Inc. Co- founder Jerry Yang said on Oct. 20 that the company isn’t necessarily on the block.

“The intent going in is not to put ourselves up for sale,” Yang said that day at the All Things Digital Asia conference in Hong Kong. “The intent is to look at all options. There’s plenty of options for the board, and plenty of options for our shareholders to realize value.”

No decision has been made yet and Yahoo could still sell to a group of investors, the people said. Yahoo may also sell a minority stake in the company, or seek a buyer for the entire company after finding buyers for Asian assets, said the people. A change of ownership entirely would put the tax-efficiency of the Asian asset deals at risk, one of the people said.

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

Interest in Yahoo

“Multiple parties” have expressed interest in Yahoo, according to a September memo by Yang. KKR & Co. and Blackstone Group LP (BX) are among the private-equity firms considering possible bids for Yahoo, people with knowledge of the matter have said.

In addition, Alibaba Group Holding Ltd., whose biggest shareholder is Yahoo, has discussed a plan with private equity firm Silver Lake and Russia’s Digital Sky Technologies to make a joint bid, people familiar with the matter have said. Another group that is interested includes Providence Equity Partners Inc. and former News Corp. (NWSA) executive Peter Chernin, people said.

The sheer number of parties that have mulled offers for Yahoo is contributing to the difficulty in reaching an agreement, the people said. Amassing the financing needed to acquire a $20.9 billion company is another hurdle, the people said.

Tax Implications

Alibaba Chairman Jack Ma has publicly expressed interest in buying Yahoo’s stake in his company. Alibaba has no comment on the Bloomberg story, John Spelich, a spokesman, said by phone in Hong Kong. Yahoo also co-owns Yahoo Japan with Softbank Corp. (9984) of Japan.

Softbank and Yahoo Japan have been in talks with Yahoo to buy its stake in Yahoo Japan for nine months but the talks are complicated by tax considerations, one person with direct knowledge of the situation said earlier this month.

The Wall Street Journal reported Oct. 28 that Yahoo is exploring a tax-free disposal of its Asian assets.

The plan involves creating a new subsidiary into which Alibaba would put cash and some assets from Alibaba or another party, the Wall Street Journal reported. The stock of that company would be swapped for Yahoo’s stake, leaving Yahoo with the cash and assets and giving Alibaba its shares back, the Journal reported. Under U.S. tax law, such a deal isn’t considered a sale and therefore is not taxable, the paper said.

A change of ownership of Yahoo would threaten the tax- efficiency of this arrangement, said one person with direct knowledge of the situation.

To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Brian Womack in San Francisco at bwomack1@bloomberg.net

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