Yahoo eyes minority stake sale, recap: sources

SAN FRANCISCO/NEW YORK Wed Nov 2, 2011 6:25pm EDT

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SAN FRANCISCO/NEW YORK (Reuters) - Yahoo Inc is contemplating the sale of a minority stake to a private equity firm followed by a large share repurchase, in a bid to buy time to turn around the Internet company, people familiar with the matter said.

The once-dominant Internet pioneer has seen its share of the U.S. Internet search market fall while Google Inc maintains its lead and Microsoft Corp continues to expand there. Yahoo's U.S. display ad impressions have also been on the decline.

Under such a plan -- one of many options being considered by the board -- a private equity firm would take a stake in Yahoo of around 20 percent, and ally itself with Yahoo co-founders Jerry Yang and David Filo, who together own another 9.5 percent of the company, these people said.

Keeping the private equity firm's initial investment below 20 percent would allow Yahoo to avoid putting the proposal up for a shareholder vote, two of the sources said.

The private equity firm and the two co-founders would then increase their combined stake to around 40 percent to 45 percent through a large share buyback that would reduce the number of Yahoo shares outstanding. Yahoo would finance the buyback through borrowing.

Such a deal would effectively give the two co-founders and the new investor control of Yahoo, providing them more time to fix the business without having to sell parts or all of the company, these sources said.

Under the plan, Yahoo would also get more time to seek out partnerships with social media companies like Facebook, Twitter and Yelp or move into mobile, the second source said.

Other sources told Reuters previously that Yang is interested in a deal with private equity firms that would take the company off public markets.

Representatives for Yahoo declined to comment.

The latest plan comes as progress on a deal for all of Yahoo has been slow, as potential bidders balk at a restrictive confidentiality agreement and the board remains split on the best way forward, sources have said previously.

The plan might allow Yahoo to remain independent, but it also might not go down well with the company's public shareholders who are expecting a sale and won't get to vote.

Yahoo would also face a significant challenge from Alibaba if it moves forward with the sale of a minority investment, the sources said. The Chinese e-commerce company, in which Yahoo has a 40 percent stake, has expressed interest in buying all or part of the company.

Under the plan, Yahoo would keep its Asian assets, one of the sources said.

Other people close to the situation said that Yahoo is still early in its strategic review process, which could unfold in a number of different ways, and the board is considering several different alternatives.

Yahoo has been pitching the minority investment plan to some private equity firms and encouraging them to sign a confidentiality agreement that would give them access to financial information but restrict their ability to independently form consortiums, sources have said previously.

Among private equity firms interested in Yahoo are Silver Lake, TPG Capital, Bain Capital, Blackstone Group, KKR, Providence Equity Partners, Hellman & Friedman, Carlyle Group and Russian technology investment firm DST Global, several sources have said.

Strategic parties including Alibaba, Microsoft and Google have also taken part in the still-developing discussions surrounding Yahoo, according to these sources.

Even as it reviews options, Yahoo made a small acquisition on Tuesday when it agreed to buy Interclick Inc for $270 million in a bid to revive its ailing online advertising business.

(Editing by Steve Orlofsky)

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