Is the Alibaba Offer Real?

 | Dec 01, 2011 | 10:31 AM EST
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Last night, Bloomberg reported that Alibaba was preparing to make a full offer for Yahoo! (YHOO), along with Softbank, Bain Capital, Blackstone and possibly others.

The stock immediately jumped after hours, closing at $16.72.

Kara Swisher then poured cold water on the story last night, citing her sources at the PE firms who said any offer was not imminent.

"... the job of the Yahoo board is to evaluate what's before them and not what is perhaps, someday, soon, wait-by-the-phone, really soon, I promise is going to be delivered."

Despite her prediction that Yahoo's stock would rocket higher this morning than the after-hours close, it seems that Kara's eminence grise lowered investors' expectations that this leak to the media was just a ploy by Alibaba to discourage Yahoo!'s board -- who met Wednesday -- from leaning towards taking a minority stake deal from Silver Lake or some other private equity bidders like TPG.

Yesterday's price action in Yahoo, which at one point was red even though the market was up 4.5%, clearly shows that investors are highly skeptical of the type of deal Silver Lake offered.

"It's a 'take under,' clearly," someone told me yesterday.

Is the offer real?

Well, shareholders would likely greatly prefer it to the Silver Lake offer. The problem with any kind of minority stake deal is that, although there are ways that such a scenario could work out very well for shareholders, it's obviously more complex and will take longer.

Shareholders want a single offer at a higher price than now. They also rightly complain that any minority take-under deal is giving up majority control without paying a control premium. And shareholders face the ignominy of not even being able to vote on the offer.

An offer of $21 a share, or $25 billion, would be embraced by many Yahoo shareholders who haven't seen Yahoo!'s stock price above $20 since August 2008.  Many shareholders are likely to want to agree ("where do I sign") in order to wash their hands of this whole sordid company and board once and for all.

The trouble with that is that Jack Ma would be getting a great deal. Fair value for Yahoo is $26 a share as is, even with a more conservative valuation for Alibaba Group and not counting the patent trove Yahoo has.

If I was Jack Ma, I would make this kind of offer, betting that there is going to be no other better offer for the company and shareholders will accept it (even if there are a few like me who complain Yahoo's leaving money on the table). The PE guys can't trump him on their own. They need a big brother.

Microsoft (MSFT)could do it and that's probably what Ma worries most about, but he would likely believe that Ballmer is not likely to want to go there, given how he feels he dodged a bullet back in 2008 thanks to Roy Bostock's abject pride and stupidity.

At some point, the clock would run out and Yahoo shareholders would accept Ma's offer. The board would not be silly enough to play 2008 over again.

So, what is Ma waiting for? Apparently, he doesn't want to go hostile and would prefer to be invited to make an offer by Yahoo's board.

Maybe  rather than trying to rattle Yahoo's board Wednesday, Ma's intent was to test the waters with shareholders. Clearly, they seem to like what they heard on first look.

Perhaps this will embolden him to go back to the board and talk further about making such an offer.

I would be worried, if I was Ma, that a Yahoo with Marc Andreessen or Reid Hoffman in charge would be a reinvigorated and stronger Yahoo. They would be a company less likely to fold and sell back their stake to him on cheap terms.

Better to pull the trigger now and control his own destiny than to wait.



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