Yahoo-Alibaba Talks Falter

By Brian Womack - Feb 15, 2012 9:35 PM GMT+0700

Yahoo! Inc. (YHOO)’s board faced renewed shareholder pressure to make changes yesterday amid a breakdown in negotiations to sell its Asian assets, a deal that could generate more than $10 billion for the company.

Talks to divest a stake in Alibaba Group Holding Ltd. (ALIBABZ) and Yahoo’s Japanese operations have reached an impasse, according to a person briefed on the matter, who asked not to be identified because the discussions are private. The discussions had focused on a tax-efficient deal, though the parties may still pursue other approaches, the person said.

The failure to reach an agreement may put further strain on Yahoo’s board, which announced plans this month to replace some directors while it continues a review of the company’s strategic options. Shareholder Third Point LLC plans to nominate its own slate of directors to the board, saying the recent overhaul didn’t go far enough to soothe concerns about Yahoo’s prospects.

“The recently announced changes do not put the issuer on the right track towards maximizing shareholder value,” Third Point, a New York-based hedge fund run by Daniel Loeb, said in a filing yesterday. “Installing the hand-picked choices of the current board does nothing to allay investor fears that Yahoo is poised to repeat the errors of its past.”

After years of sluggish sales, a stagnant stock price and market-share losses to Facebook Inc. (FB) and Google Inc. (GOOG), Yahoo investors see the Asian sale as a way to earn a payday. Yahoo also spurned a $47.5 billion takeover bid from Microsoft Corp. in 2008, irking shareholders. The value of the Asian assets is about $11.5 billion, according to Sameet Sinha, an analyst at B. Riley & Co. in San Francisco.

Another Option?

Following the breakdown in discussions, representatives of Alibaba and Softbank Corp. (9984), co-owner of Yahoo Japan Corp. (4689), are prepared to explore another arrangement that would let Yahoo sell its Asian stakes, the person familiar with the matter said. Sunnyvale, California-based Yahoo, the biggest U.S. Web portal, is prepared to continue talks on deals that would create value for shareholders, a separate person said.

Yahoo’s stock fell 1 percent to $15.21 at 9:31 a.m. in New York. The shares had lost 9 percent of their value in the past year through yesterday. Alibaba.com Ltd. shares remained suspended in Hong Kong, as they have been since Feb. 9. There is no publicly traded debt on the company, according to data compiled by Bloomberg.

Confidence Not High

“It is certainly possible that this is a temporary impasse,” Clayton Moran, an analyst with Benchmark Co. in Delray Beach, Florida, said in a research note yesterday. However, “the complex nature of this deal and the past performance of Yahoo’s board both limit our confidence.”

Third Point said that while newly appointed directors Fred Amoroso and Maynard Webb bring technological expertise to Yahoo, the board needs to do more to address the company’s future. In last week’s shakeup, Yahoo said Chairman Roy Bostock and three other directors won’t stand for re-election. That followed the arrival of Chief Executive Officer Scott Thompson in January.

The hedge fund’s nominees are Harry Wilson, CEO of Maeva Advisors LLC; Michael Wolf, head of Activate Inc.; Jeffrey Zucker, former CEO of NBC Universal; and Loeb himself. In Third Point’s vision, the new board would exclude Patti Hart, head of the nominating and corporate governance committee, as well as the recently appointed directors and the members planning to exit, according to the filing.

‘Especially Disappointing’

Yahoo has engaged with many of its largest shareholders, including Third Point, since the announcement of the board changes last week, the company said in an e-mailed statement.

“We have received constructive suggestions from several of our major shareholders and, therefore, it is especially disappointing that Mr. Loeb has chosen a potentially disruptive path, just as the company is moving forward under new leadership to aggressively increase the value of Yahoo (YHOO) for the benefit of all of its shareholders,” the company said. “The nominating and corporate governance committee continues to review candidates and will make its recommendations to the full board in due course.”

Dana Lengkeek, a spokeswoman for Yahoo, didn’t return messages seeking comment on the discussions. Technology blog AllThingsDigital reported the breakdown of talks earlier.

Yahoo began a review of its options during the ouster of CEO Carol Bartz in September. The company said this month that the board weighed proposals for equity investments and failed to receive an attractive offer. Yahoo said then that it continues to discuss a possible sale of its holdings in Asia and that it’s devoting “significant resources to these discussions.”

Yahoo has considered a deal with Alibaba and Softbank that would cut its stake in Alibaba to about 15 percent from about 40 percent, a person familiar with the matter has said. Alibaba Group wanted to complete the terms of a loan of about $3 billion by the end of last week for a potential buyback of shares held by Yahoo, a person familiar with the matter said last week.

To contact the reporter on this story: 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