Silver Lake Group Said to Bid $16.60 a Share for Yahoo Stake

By Brian Womack, Jeffrey McCracken and Serena Saitto - Dec 1, 2011 5:19 AM GMT+0700

A group of investors led by private- equity firm Silver Lake offered to buy a minority stake in Yahoo! Inc. for about $16.60 a share, according to people with knowledge of the matter.

Silver Lake, working with Microsoft Corp. (MSFT), venture-capital firm Andreessen Horowitz and Canada Pension Plan Investment Board, offered to buy convertible preferred securities equal to a 10 percent to 15 percent stake for as much as $3 billion, said one of the people, who asked not to be identified because the bids made this week are private. The price was lower than an offer made by private-equity firm TPG Capital, two people said.

Silver Lake’s bid values Sunnyvale, California-based Yahoo at $20.6 billion, about 6 percent higher than its market value at yesterday’s close. Under Silver Lake’s proposal, Yahoo would be able to distribute at least $5 billion to shareholders in the form of a special dividend or a share buyback, said the person. Yahoo, exploring strategic options after ousting Chief Executive Officer Carol Bartz, aims to wrap up the deal by the end of the year, people said.

“The offer is disappointing,” said Hamilton Faber, an analyst at Atlantic Equities LLP in London with a “neutral” rating on Yahoo shares. “Investors who’ve been buying Yahoo recently were hoping for a significant premium and a takeout of the full company, and this falls short on both counts.”

Spokeswomen for Yahoo, Silver Lake and Canada Pension Plan declined to comment.

Board Meeting

Yahoo directors are likely to discuss offers at a board meeting scheduled for today, one person said. Alibaba Group Holding Ltd., aiming to buy back the stake in itself owned by Yahoo, is monitoring the situation and may still enter the bidding, one person said.

Yahoo gained 1 cent to $15.71 at the close in New York. The shares have declined 5.5 percent this year.

While Microsoft failed in 2008 to acquire all of Yahoo, it aims to use a minority holding to safeguard its 10-year Web search agreement with the company.

Microsoft, based in Redmond, Washington, forged the partnership under Bartz to provide search technology to Yahoo sites. The deal was aimed at helping both companies vie with Google, the leader in U.S. search-related advertising.

Alibaba’s Role

KKR (KKR) & Co. and Blackstone Group LP (BX) are among the private- equity firms considering possible bids for Yahoo, people with knowledge of the matter said last month.

Private-equity firm Thomas H. Lee Partners is also considering a bid for Yahoo, people knowledgeable said.

Alibaba Group has said it’s interested in acquiring Yahoo, in part to buy back a stake the company owns. With a holding of about 40 percent, Yahoo is Alibaba’s biggest investor. Alibaba is waiting to see whether Yahoo’s board will deem the partial- stake bids inadequate and invite it into negotiations to acquire the whole company, a person with knowledge of the matter said. Alibaba is open to acquiring its stake back or making a larger push for all of Yahoo, this person said.

Alibaba already submitted an offer to buy back the stake in itself held by Yahoo, said the people. That proposal was made together with Japan’s Softbank Corp., which wants to buy the rest of Yahoo Japan, and may be reviewed by Yahoo’s board today, the people said.

Alibaba and Softbank are less likely to make an offer for all of Yahoo because of difficulty financing a bid, one person said. The companies have discussed this possibility, people said earlier this month.

The Wall Street Journal reported yesterday that Yahoo aims to strike a deal by year’s end.

Bloomberg LP, the parent company of Bloomberg News, is an investor in Andreessen Horowitz.

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

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