PE firms circling around Yahoo

Private equity firms have been circling around the second biggest U.S. search engine Yahoo lately, according to Reuters. Yahoo has a current market value of more than $20 billion. Silver Lake Partners was involved in early negotiations, while Blackstone was pitched the idea but was not thought to be working on a deal. According to Bloomberg, Yahoo is working with Goldman Sachs on ways to defend against takeover.

(Reuters) – Several private equity firms have approached Internet and media companies including News Corp and AOL Inc in recent weeks to gauge their interest in buying out Yahoo Inc, a source with knowledge of the approaches told Reuters on Wednesday.

A potential deal, however, would be contingent on Yahoo, the No. 2 U.S. search engine, selling its prized Asian assets that include a 40 percent stake in China’s Alibaba, the source said on condition of anonymity because discussions were not public.

Yahoo’s plans for its Asian investments have sprung into the investor spotlight since Yahoo Japan — of which it owns 35 percent — turned to arch-foe Google Inc for its Internet search technology.

But disposing of those assets — which some of Yahoo’s investors favour — would help reduce Yahoo’s market value of more than $20 billion now, making a deal more feasible.

Talks with News Corp and AOL began about two weeks ago and intensified in recent days, but Yahoo had not yet been approached as talks were still in their early stages, the source said.

Yahoo shares, which finished Wednesday up nearly 6 percent, gained another 9.5 percent to $16.71 in extended trading. Shares in Alibaba.com — the listed arm of China’s largest e-commerce firm — and Yahoo Japan rose in Asia trading.

Speculation of private equity interest in Yahoo, which is struggling to rekindle growth and stem an exodus of senior executives to rivals, has surfaced sporadically in past months.

Silver Lake Partners [SILAK.UL] was among the firms in very preliminary, recent discussions about acquisition scenarios, a second source with knowledge of the matter said.

Blackstone had also been pitched the idea but was not currently working on a Yahoo deal, a separate source said.

News Corp, AOL, and Yahoo declined comment.

In Tokyo, Yahoo Japan, owned 34.5 percent by Yahoo Inc, gained 5.5 percent to 30,350 yen. Yahoo Japan’s top shareholder Softbank Corp rose 2.9 percent to 2,725 yen.

Softbank, Japan’s No. 3 mobile phone operator, also owns 33 percent of Alibaba Group. The heads of the two groups, Jack Ma of Alibaba and Masayoshi Son of Softbank, work very closely, and as one of their latest collaborations, Yahoo Japan and Alibaba’s e-commerce website Taobao in June launched online platforms to cross sell into each others’ markets.

WANTED: MORE BUZZ

The news comes as Yahoo, the No.2 search engine in the United States behind Google, struggles to revive its revenue growth under the management of Chief Executive Carol Bartz, and to rebuild its buzz among consumers amid competition from social networking sites such as Facebook.

AOL is similarly keen on gaining scale and snagging content to re-kindle growth. The Wall Street Journal cited people familiar with the matter as saying private equity firms were exploring the possibility of teaming up with AOL on a joint bid, which could give AOL the content and online eyeballs it needs to become a news and entertainment powerhouse.

Among various scenarios discussed, one involved Alibaba Group buying back Yahoo’s 40 percent stake in the Chinese firm and Yahoo selling off assets to rival media and technology companies, the newspaper reported.

Another could involve AOL combining its operations with Yahoo in a reverse merger — again after Yahoo sells its stake in Alibaba, China’s top online commerce firm, it said.

In China, two sources at Alibaba said they had not heard about any buyout of Yahoo’s stake. Analysts said that if the talks are preliminary, Alibaba may not have been approached yet.

Bloomberg reported that Yahoo is working with Goldman Sachs to help defend possible takeover approaches, citing three sources.

Whatever form it takes, any deal would likely be a far cry from the $47.5 billion, or $33 a share, offer that Microsoft made for Yahoo in 2008 and which was rebuffed by Yahoo’s co-founder and then-CEO Jerry Yang, analysts and investors said.

Ironfire Capital’s Eric Jackson, who was involved in an activist campaign directed at Yahoo during the time of the Microsoft acquisition talks, said that even a $20 a share offer for Yahoo — which would represent a nearly 40 percent premium over Tuesday’s closing price — might encounter resistance from some of Yahoo’s major shareholders.

“There would be some large shareholders in Yahoo that wouldn’t like that, they wouldn’t view that as an attractive exit for them,” said Jackson, who no longer owns Yahoo shares.

Since joining Yahoo as CEO in January 2009, Bartz has made progress boosting profit margins, and struck a money-saving search partnership with Microsoft.

But many investors are frustrated at the pace of efforts to galvanize revenue growth, and rail at what some contend has been a lack of a clear vision about Yahoo’s strategy.

Compounding its woes is an exodus of executives, culminating with the announcement last month that U.S. head Hilary Schneider, and two other high-profile executives, were headed for the exit.

(By Jennifer Saba and Megan Davies. Additional reporting by Ken Li and Nadia Damouni in New York, Alexei Oreskovic in San Francisco, Sachi Izumi in TOKYO; Melanie Lee, Huang Yuntao and David Lin in SHANGHAI; Writing by Edwin Chan; Editing by Gary Hill and Dhara Ranasinghe)