A team of Yahoo! (NASDAQ: YHOO) managers who were negotiating terms to sell its stake in Alibaba back to Alibaba apparently walked away from the talks, according to tech site AllThingsD. The transaction also would involve Softbank buying back Yahoo!’s stake in Yahoo! Japan. The Washington Post reports that Alibaba will appeal directly to Yahoo!’s new CEO, Scott Thompson, in the belief that he is anxious to get cash for the Alibaba and Softbank holdings. Then he can move on to fixing the company’s core portal business. Of course, it is possible that it was Thompson who had his team stop the negotiations.
Yahoo! and Alibaba have been talking for months, all the way back to the time when the U.S. company was run by since-ousted CEO Carol Bartz. The negotiations also were overseen then by Yahoo!’s board, many of whom have departed or soon will. Thompson joined Yahoo! in the midst of the talks, which many analysts believe were close to a conclusion. He may not have liked what he saw.
Some experts put the value of Yahoo!’s holdings in Alibaba and Yahoo! Japan at nearly $17 billion. That assumes Yahoo! can set a deal that would allow it to avoid taxation of the money. Such a structure seems to be difficult to build. Without a proper tax provision, Yahoo!’s yield would be much less. Those factors probably dragged out the talks. There is no sign that the problem was completely resolved in recent negotiations. Yahoo!, in other words, may not be certain of what it will receive in exchange for its holdings.
Thomson may believe that Alibaba and Softbank are more anxious for a deal than Yahoo! should be. One theory is that Yahoo! wants the money to expand through acquisition. But Thompson could reason that M&A should come after a repair of the core portal business is underway. In the meantime, Yahoo! Japan and Alibaba will have to live with an unwanted partner. The pressure on them to improve terms will be greater than Thomson’s if he has no immediate use for the money.
At first glance, it seems that Yahoo!’s negotiators left talks because they were unsatisfied with the terms offered by Alibaba and Softbank. It is just as possible that Thomson told them to leave because he does not need the money for now and thinks he can get better terms in the future. Let the other side make the deal more attractive if they want a deal right away.
Douglas A. McIntyre
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