Watch For Softbank Surprise in Yahoo Bids

 | Jul 06, 2016 | 12:39 PM EDT
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Today, the bids for the third round are due in Yahoo's (YHOO) core business auction.

There have been some reports this week that this is the final round of bids, but that's not accurate. As I wrote last week, there will be a fourth, and final, round of bidding with a deadline of Monday, Jul. 18.

What's most interesting about this final deadline date for bids is that it falls one day before Yahoo is scheduled to report its second-quarter earnings.

It may be that Yahoo management and its advisors are aware that the numbers could be highly disappointing, and have planned accordingly. 

Up to this point, the bidding process has been pretty straightforward. Verizon (VZ) has been the prohibitive favorite to win the auction throughout, with Tim Armstrong taking over running the Yahoo assets upon completion.

Some private equity players still remain in the process, while others have dropped out.

The biggest surprise entrant in the bidding process so far has been Dan Gilbert of Quicken Loans, with the financial backing of Warren Buffett. 

Although AT&T (T) is still in the running, most people I've spoken with do not seem to think that they have the same level of interest in the Yahoo assets as Verizon does.

There is one potential bidder for Yahoo's assets that still might emerge in the next two weeks, who hasn't been mentioned much yet: Softbank. If they make a bid today, word should leak out in the press by the end of the week.

There's a big reason why Softbank could now be an aggressive bidder for Yahoo: Nikesh Arora left the company a couple of weeks ago. 

Although Arora came to Softbank two years ago from a top job running sales for Alphabet (GOOGL) to be the heir apparent for Softbank's founder and CEO Masayoshi Son, it seems to have become clearer over the past few months that Son wasn't yet ready to give up the CEO title.

Arora had been a well-known skeptic of Yahoo, and had publicly scoffed at the idea of Softbank buying Yahoo's core business, when asked earlier this year. There are probably several reasons for his lack of interest in Yahoo:

--Softbank, which used to own a large stake in Yahoo and which shares an ownership stake in Yahoo Japan with Yahoo, still pays a substantial royalty stream to Yahoo for IP sharing and search royalties. Arora had advocated strongly to end those payouts.

--Several media outlets reported four years ago that Arora had been approached about the Yahoo CEO job before Mayer, and turned it down.

--Some market watchers have also said that the relationship between Arora and Marissa Mayer -- dating back to their Google days --had been cool for years.

--In his two years at Softbank, Arora had been heavily focused on making many new bets on private companies in emerging markets, like India and Southeast Asia. Perhaps to him, a bet on Yahoo appeared to be a bet on the past -- and on one of the most mature internet markets in the U.S.

With Masa now holding complete control of Softbank and no fear about contradicting Arora's prior public views, this opens the possibility for a much larger deal between Yahoo and Softbank. 

It is well known that Softbank has been interested in repatriating Yahoo's 35% stake in Yahoo Japan. Such a deal has come off the rails several times in the past few years over price.

Softbank may now be interested in buying Yahoo to get back that Yahoo Japan stake in one fell swoop. However, don't forget that Softbank owns Sprint (S). If Verizon and AT&T are interested in Yahoo's core business to offer up more web services to their mobile customers, so might Sprint be. Sprint may want Yahoo's ad technology as well as the ability to stream videos to its mobile users -- which Yahoo offers.

If Softbank doesn't want to spend money on all of Yahoo's core business (although it just raised a bunch of money from selling part of its Alibaba (BABA) stake), it could look at doing something like a cash-rich split -- to pay cash plus some other internet assets that it controls, in exchange for the Yahoo Japan stake. The benefit (for both Yahoo and Softbank) of doing a cash-rich split is that it would be tax free under IRS rules. 

There's also the possibility that Alibaba could get involved in any large transaction between Softbank and Yahoo, since Yahoo still owns 384 million shares of Alibaba and Softbank maintains a large stake in Alibaba. Jack Ma might be fearful of Softbank gaining control of Yahoo's Alibaba stake.

Masa has shown in the past that he acts quickly to make a deal when he wants to, and bases his decisions on intuition, as much as analysis. With Arora now out of the picture, Masa might want to show the world that he is back in control of Softbank. He has yet to make a big deal since Arora left.

Perhaps Yahoo could be that first splashy deal. We should know more by the end of the week. In my opinion, the logic and history between Yahoo and Softbank make sense.

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