Is a Ma Deal Best for Yahoo! Shareholders?

 | Oct 05, 2011 | 9:00 AM EDT  | Comments
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Since Jack Ma surprised the markets after-hours on Friday by saying he was "very, very interested" in buying Yahoo! (YHOO), people have wondered if he was serious.

I'm sure he's quite serious as he's in the driver's seat to green-lighting any potential deal, because his tacit approval is critical for any buyer. If he wants to take the Yahoo! assets over lock, stock, and barrel he could probably do it with the help from partners to foot the bill.

But would such a deal be good for Yahoo! shareholders? It really comes down to the price he's willing to pay those shareholders.

Despite some hard feelings after the whole Alipay fiasco in May, the bottom line is that Yahoo! shareholders won't give a damn, as long as Ma pays up now.

A few weeks ago, Dan Loeb, Yahoo!'s third-largest shareholder, said that Yahoo! was worth between $20 and $28 in "fair value."  The reason for the big gap is the wide varying opinions for the value of Alibaba Group, which is still private.  Loeb said that it's worth the higher-end of the range if Alibaba Group is valued closer to $25 billion.

Two ex-Alibaba Group employees who control a block of Alibaba Group shares who told me they've been approached by Alibaba Group to buy back their shares before October 21.  The price Alibaba Group is willing to pay them values the group at $33.75 billion.

Given this, there's an argument to be made that Yahoo! is worth $33 per share today. And that doesn't include a take-out premium.

If I was Ma, I'd try to pay far less than that and see if I could take advantage of Yahoo! shareholders being desperate for a deal. I'd lob a bid in for $20 and maybe then go as high as $25.

At $25 a share there would be many Yahoo! shareholders that would be willing to throw in the towel and tender their shares in order to be rid of Yahoo! and its terribly destructive board.

That would be a mistake, but I suspect that would happen.

Some have suggested that the US government would block Jack Ma from doing this and turn the issue into a political football. Many a Congressman would get up and decry as a Chinese nationalist who cannot be trusted.

Again, I have a hard time believing that any large Yahoo! shareholder would let some politicians get in between them and some take-out offer. But the potential hassle might be enough to force Ma to enlist some American partners – whether Silver Lake, Andreessen Horowitz, or Microsoft (MSFT) – to Americanize the deal.

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