Private equity courts News Corp, AOL on Yahoo: source

NEW YORK Thu Oct 14, 2010 2:22am EDT

A Yahoo! billboard is seen in New York's Time's Square January 25, 2010. REUTERS/Brendan McDermid

A Yahoo! billboard is seen in New York's Time's Square January 25, 2010.

Credit: Reuters/Brendan McDermid

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NEW YORK (Reuters) - Several private equity firms have approached Internet and media companies including News Corp and AOL Inc to gauge their interest in buying out Yahoo Inc, a source with knowledge of the approaches said.

The news comes as Yahoo, the No.2 search engine in the United States behind Google Inc, struggles to revive its revenue growth under the management of Chief Executive Carol Bartz, and to rebuild its buzz among consumers amid competition from social networking sites such as Facebook.

A potential deal would be contingent on Yahoo selling its prized Asian assets, including a 40 percent stake in China's Alibaba Group and 34.5 percent of Yahoo Japan, the source told Reuters on Wednesday on condition of anonymity because discussions were not public.

Talks with News Corp and AOL began about two weeks ago and intensified in recent days, but Yahoo had not yet been approached as talks were still in their early stages, the source said.

Yahoo shares, which finished Wednesday up nearly 6 percent, gained another 9.5 percent to $16.71 in extended trading. Shares in Alibaba.com and Yahoo Japan rose in Asia trading.

Speculation of private equity interest in Yahoo, which is also struggling to stem an exodus of senior executives to rivals, has surfaced sporadically in past months.

Silver Lake Partners was among the firms in very preliminary, recent discussions about acquisition scenarios, a second source with knowledge of the matter said.

Blackstone had also been pitched the idea but was not currently working on a Yahoo deal, a separate source said.

News Corp, AOL, and Yahoo declined comment.

GOOGLE DOMINATES

Yahoo's plans for its Asian investments have sprung into the investor spotlight since Yahoo Japan turned to arch-foe Google for its Internet search technology.

Once dominant in search, Yahoo has been overshadowed by Google's growth and its market value is now little more than a tenth of its rival.

In Tokyo, Yahoo Japan gained 5.5 percent and Yahoo Japan's top shareholder, Softbank Corp, rose 2.9 percent.

Yahoo Japan has a market capitalization of about $20.5 billion, valuing Yahoo's stake at about $7 billion.

Shares in Alibaba.com edged up 0.3 percent in Hong Kong.

Analysts value parent Alibaba Group, China's largest e-commerce company, at between $15 billion to $25 billion, meaning Yahoo's 40 percent stake is worth up to $10 billion.

By disposing of those assets -- which some of Yahoo's investors favor -- would help drastically reduce Yahoo's market value of almost $20 billion now, making a deal more feasible.

Analysts said disposing of Yahoo's Asian assets, particularly its high-growth Chinese assets might be a problem.

"An Alibaba share sale is not easy to achieve. It is not a small deal and obviously it would be hard to calculate the valuation to the benefit of all parties," said Wallace Cheung, an analyst with Credit Suisse in Hong Kong.

Of the three crown jewels of Alibaba Group, only Alibaba.com is listed. The other two, Taobao, China's largest e-commerce site with a consumer focus; and Alipay, China's largest e-payment provider, are private with shifting business models.

Taobao has 75 percent of China's consumer e-commerce market by transaction value while Alipay has 51 percent of China's e-payment market, according to Analysys International.

Softbank, Japan's No. 3 mobile phone operator, also owns 33 percent of Alibaba Group. The heads of the two groups, Jack Ma of Alibaba and Masayoshi Son of Softbank, work very closely, and as one of their latest collaborations, Yahoo Japan and Alibaba's e-commerce website Taobao in June launched online platforms to cross sell into each others' markets.

WANTED: MORE BUZZ

AOL is keen on gaining scale and snagging content to re-kindle growth. The Wall Street Journal cited people familiar with the matter as saying private equity firms were exploring the possibility of teaming up with AOL on a joint bid, which could give AOL the content and online eyeballs it needs to become a news and entertainment powerhouse.

Among various scenarios discussed, one involved Alibaba Group buying back Yahoo's 40 percent stake in the Chinese firm and Yahoo selling off assets to rival media and technology companies, the newspaper reported.

Another could involve AOL combining its operations with Yahoo in a reverse merger -- again after Yahoo sells its stake in Alibaba, it said.

In China, two sources at Alibaba said they had not heard about any buyout of Yahoo's stake. Analysts said that if the talks are preliminary, Alibaba may not have been approached yet.

Bloomberg reported that Yahoo is working with Goldman Sachs to help defend possible takeover approaches, citing three sources.

Whatever form it takes, any deal would likely be a far cry from the $47.5 billion, or $33 a share, offer that Microsoft made for Yahoo in 2008 and which was rebuffed by Yahoo's co-founder and then-CEO Jerry Yang, analysts and investors said.

Ironfire Capital's Eric Jackson, who was involved in an activist campaign directed at Yahoo during the time of the Microsoft acquisition talks, said that even a $20 a share offer for Yahoo -- which would represent a nearly 40 percent premium over Tuesday's closing price -- might encounter resistance from some of Yahoo's major shareholders.

"There would be some large shareholders in Yahoo that wouldn't like that, they wouldn't view that as an attractive exit for them," said Jackson, who no longer owns Yahoo shares.

(Additional reporting by Ken Li and Nadia Damouni in New York, Alexei Oreskovic in San Francisco, Sachi Izumi in TOKYO; Melanie Lee, Huang Yuntao and David Lin in SHANGHAI; Writing by Edwin Chan; Editing by Gary Hill, Dhara Ranasinghe and Lincoln Feast)

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