Why Doesn't Yahoo! Sell Its Own Asian Assets?

Why will Yahoo! (NASDAQ: YHOO) not sell its own Asian assets and run its core business with an additional $10 billion from the proceeds from those sales on its balance sheet?

The process to bid for Yahoo! has made many potential buyers unhappy. They have been asked to sign highly restrictive nondisclosure agreements.  There are rumors that several private equity firms have agree to the document anyway and that Microsoft (NASDAQ: MSFT) may have assented to the request as well. But the nature of the nondisclosures makes it hard for potential buyers to talk among themselves as a way to create bids that involve more than one party. The nondisclosure decision by Yahoo! is odd because the board seems absolutely intent on a sale of the company.

Yahoo! has impeded its sale process at the same time as it signals it a lack of confidence in its own core business. It would be no surprise if this drives some potential buyers away. Yahoo! could sell its 40% of Alibaba and its stake in Yahoo! Japan and use the capital to buy new properties to enhance the value of its portal business. That would be a signal that the board of directors believes that the display advertising business and search joint venture with Microsoft could be built enough to increase Yahoo!’s no-growth top line. Yahoo! already has cut hundreds of millions of dollars in costs. That leaves it with a great deal of leverage to increase margins if sales rise.

Yahoo!’s board has begun the search for a new CEO. Many investors see this as a diversion, one unlikely to produce a new chief executive because the company will be sold in whole or in part before the end of the year. The search is a way to make outsiders believe Yahoo! may remain independent. But the markets have expressed almost universal skepticism.

If the Yahoo! board believes there is a future in the display advertising business, it can announce that it will begin to divest its Asian assets and invest in the staff and new features that would draw a large number of new advertisers or an increased presence of old ones. Yahoo! has not sent that signal.

Douglas A. McIntyre