Yahoo! Needs a Holistic Deal

 | Dec 07, 2011 | 7:01 AM EST  | Comments
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The latest news last night from The Wall Street Journal was that Yahoo! (YHOO) had gone back to its various private equity bidders and encouraged them to make higher offers to buy 19.9% of the company so that they can approve the deal without putting it to a shareholder vote.

There is a conceivable scenario whereby a leveraged recapitalization of Yahoo! could unlock serious value in the company. But it will take several months, if not years, and shareholders have no guarantee that the new board (and Jerry Yang) will follow through in the proper manner needed to unlock that value.

From a shareholder perspective, a 20% minority stake deal is a non-starter compared to the option of a purchase of all of Yahoo!.

As many shareholders have put it to me over the last couple of weeks: why should Silver Lake get control of Yahoo! for a discount, let alone a control premium?  They're right.

There is no reason to do a leveraged recap when there is a willing buyer for Yahoo! at the moment for all of Yahoo!. That buyer is Alibaba Group and Jack Ma. He, along with Softbank and several other financial backers, have an interest in buying the whole company.

But they haven't made an offer yet.

So, people like Henry Blodget of Business Insider (who is conflicted on this issue "out the wazoo" as he puts it) have argued that Yahoo! can't accept an offer from Jack Ma that they haven't yet received. So, they've got to play the hand they've been dealt with.

But there's something misleading about this argument.

Jack Ma has said repeatedly that he wants to be invited to do a deal with Yahoo!  That means he wants some assurances that he'll make a friendly offer and it will be supported by Yahoo!'s board who will, in turn, recommend it to shareholders.

Jack Ma is worried that, if he goes hostile, there is a remote chance that Yahoo!'s board could fight the offer and shareholders would side with the board instead of him.

I don't think he should be worried about it.

From my perspective, and I assume most shareholders whether they are mutual funds or hedge funds, a holistic deal would be far more preferable to a partial deal, especially when shareholders would actually get a vote on a whole deal compared to a backdoor deal for the company.

Some quick math: Yahoo! has $3 billion in cash, a stake in Alibaba Group that can be unlocked tax efficiently for $13.5 billion and a stake in Yahoo! Japan that is a public company for $6.5 billion. That's $23 billion in value and the company's market cap closed yesterday below $20 billion.

The market is not stupid.  It is simply attaching a bozo discount to the company.  The bozos on this board are trying to dilute shareholders 20% for the privilege of having play some unspecified role in the company.  Shareholders won't know what role he's going to play in the company before this bozo board sells off 20% of their company first. How is that fair? How is that just?

It's time to put an end to this nonsense. No PE deal for Yahoo!. If someone wants to buy this company, pay up with a control premium to boot.

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