The latest news in the continuing Yahoo! (YHOO) saga is an overnight takeover offer from a coalition of Chinese Internet company Alibaba Group, private-equity firm Silver Lake and Russia's Digital Sky Technologies.
According to Doug Kass and his gnome, the group will bid $19 per share for the Internet pioneer. This makes sense from a number of angles:
- Silver Lake co-founder and co-CEO Glenn Hutchins was on CNBC's "Squawk Box" Friday and answered "no comment" when asked about Yahoo!, which suggests something is up.
- Silver Lake and DST bought a small stake in Alibaba Group a couple of weeks ago.
- Alibaba CEO Jack Ma indicated his interest in Yahoo! Friday in a speech at Stanford University, surprising some.
- In that speech, Ma said that there weren't any financial issues preventing a deal, but "political" ones could.
The biggest threat facing such a combination of Ma, Silver Lake and DST is too many foreigners and not enough Americans. It may seem strange, but you can expect this to be a hot-potato issue once a bunch of Congressmen starts sticking their noses into things.
Then you have the problem of a possible bid at $19 per share for Yahoo! While there might be some Yahoo! shareholders who think such a bid is manna from Heaven, I wouldn't. To my eyes, such a bid would be outright highway robbery.
Given Alibaba Group's internal valuation at $33.75 billion for the purposes of buying back its former employees' stock later this month, a sum-of-its-parts valuation puts Yahoo! at $33 per share today. And that's before a take-out premium.
I can understand why Jack Ma would be "very, very interested" in Yahoo! for $19 per share when the asset is worth $33 per share.
I know there are several large shareholders who feel the same way. Ma might believe he can get a majority of frustrated Yahoo! shareholders to tender their shares. He's likely hoping they'll get cold feet after hanging tough against Microsoft (MSFT) in 2008. They should hang tough.
Jack Ma is an amazing businessman whom I truly admire. But you're crazy if you don't think he's one of the craftiest guys in business today.
Yahoo! shareholders should push for much more, and they can encourage Microsoft, News Corp. (NWSA) and other media companies to get in the mix.
At the end of the day, any bidder will have to win over Jack Ma, but there is no reason why they can't -- and still satisfy Yahoo! shareholders as well.
I was particularly heartened to see the Yahoo! board trumpeting the value of its 1000 patents in search and display, including the valuable batch they acquired as part of their Overture deal way back when, which predated a number of Google's (GOOG) patents.
The next couple of months should be interesting.