• Bloomberg


Alibaba Group Holding Ltd. and Softbank Corp. are in advanced talks with Blackstone Group LP and Bain Capital LLC about making a bid to buy Yahoo! Inc. in its entirety, according to three people with knowledge of the matter.

A bid may value Yahoo at more than $20 a share because of tax savings tied to the Internet company’s stakes in China-based Alibaba and Yahoo Japan, said two of the sources, who declined to be identified because the discussions are private. Yahoo shares advanced 6.9 percent to $16.79 in extended trading.

Yahoo’s board is meeting to discuss offers it received for a minority stake in the Sunnyvale, California-based company from bidders including TPG Capital and a group led by Silver Lake, other sources said this week. Silver Lake’s bid valued Yahoo at about $16.60 a share, but TPG Capital’s offer was higher, the sources said.

Some Yahoo investors say they would prefer the company be sold in its entirety, at a higher price. “It definitely has to be much higher than $16.60,” said Di Zhou, a Santa Fe, New Mexico-based analyst at Thornburg Investment Management, which oversees about $80 billion in assets, including Yahoo shares.

While the Alibaba group has prepared financing for a possible offer, it hasn’t decided on a final price or whether to proceed, the sources said. The group would prefer to be invited to bid rather than launching a hostile takeover, one of them said. Alibaba hasn’t informed Yahoo of its possible bid, the source added.

“Alibaba Group has not made a decision to be part of a whole company bid for Yahoo,” said John Spelich, an Alibaba spokesman.

At $20 a share, Yahoo would be valued at 24.1 times its earnings in the past 12 months, data compiled by Bloomberg show. That would compare with 20.4 times for Google Inc. and a ratio of 9.5 for Microsoft Corp.

The $20 price tag would undervalue the company because its Asian assets have so much growth potential, said Thornburg’s Zhou, who values the shares at about $25. Yahoo, the largest U.S. Internet portal, owns about 40 percent of Alibaba, the top e-commerce site in China, and 35 percent of Yahoo Japan.

Zhou wants to see Yahoo hold onto the Alibaba stake until the Chinese company can hold an initial public offering, providing a windfall to investors.

“Chinese Internet penetration and e-commerce is going well,” she said. “It should be more valuable by the day.”

Total Internet users in China may grow 27 percent this year, with the number of online shoppers climbing 28 percent, according to Thornburg.

Alibaba is seeking to buy back the stake in its company that Yahoo owns. Softbank, meanwhile, wants to acquire the stake in Yahoo Japan, one of the sources said. In the proposed deal, Blackstone and Bain would take control of the U.S. operations, the source said.

Spokeswomen for Blackstone, Softbank and Yahoo declined comment.

Alibaba CEO Jack Ma said in October that his company is interested in purchasing Yahoo. Earlier attempts by the Chinese e-commerce leader to buy out Yahoo’s stake faltered amid disagreements with former CEO Carol Bartz. Yahoo acquired the Alibaba stake for about $1 billion in 2005.

While Alibaba is in advanced talks with Blackstone and Bain, the company is also in discussions with other private-equity firms about an offer, including Providence Equity Partners Inc., one source said.

Ken Sena, an analyst at Evercore Partners Inc. in New York, puts Yahoo’s total value at about $18 a share, with $5 coming from its U.S. Internet business. The so-called off-balance-sheet assets — including its Asian investments — are worth $11 a share, plus $2 in cash, he said. By buying the whole company, Alibaba would avoid having to negotiate over how much Yahoo’s main business is worth, Sena said.

“Almost two-thirds of the enterprise value is really these off-balance-sheet assets,” he said.

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