Possible Buyers — Including AOL — Are Looking At Yahoo

Yahoo

Yahoo’s stock is now up more than 10 percent in after-hours trading — on top of a 5 percent jump during the day — as buzz mounts that a number of suitors are looking at the company. Kara Swisher at AllThingsD says PE Firm Silver Lake Partners, News Corp. (NSDQ: NWS), and AOL (NYSE: AOL) all may be interested. The WSJ says that Silver Lake and another PE firm, Blackstone Group, are interested in picking up the company themselves or joining AOL in a bid.

The WSJ suggests that one possibility is that Chinese e-commerce giant Alibaba may buy back Yahoo’s stake, which is valued at more than $10 billion, in conjunction with a possible deal. That would allow a suitor to buy Yahoo for much less than its current $20 billion-plus market value. In the past, Alibaba itself has been mentioned as a possible candidate to buy all of Yahoo, possibly with another party.

Talk of an offer will put pressure on CEO Carol Bartz to do something to turn around Yahoo’s flagging stock price, including possibly selling the Alibaba stake or offloading the company’s investment in Yahoo Japan. Swisher says Yahoo could possibly also go ahead and buy Groupon, a company she has reported that the company is interested in. That, at least, would provide a distraction.

It’s worth noting that in the past Bartz has said that the company would “absolutely” entertain buyout bids as long as they were at the “right price” and has said that if she had been CEO when Microsoft (NSDQ: MSFT) made its $33 a bid she would have sold. That’s not exactly a surprise, of course. The company’s stock price is trading at $16.87 — even after today’s jumps. Swisher floats $20 as a possible price for a deal. Over at BusinessInsider, Henry Blodget says he thinks Yahoo will “fiercely resist” any initial offers but expects shareholders to pressure management to give in.

David adds: Yahoo and AOL attempted to merge once before, when the former was being run by Jerry Yang and the latter was under Time Warner (NYSE: TWX). The talks collapsed when Jerry Yang was ousted and Carol Bartz came in, sources told us. Under the terms of that previous deal, Time Warner would have taken a small stake in Yahoo (NSDQ: YHOO). Aside from the change in leadership, the talks didn’t go very far because the at the time, simply because the two sides didn’t think they’d see much benefit despite the combined scale of their display offerings, since both sides individually had tremendous reach on their own.

But AOL’s fortunes have certainly changed since the split from Time Warner. While Yahoo’s display revenues have risen, AOL’s display dollars have continued to decline as the company has been reforming its sales force and ad strategy. At this point, observers believe Yahoo’s much more robust targeting abilities would provide a significant boost to AOL’s Advertising.com, its primary display sales unit.

Although AOL’s $100 million cap on acquisitions has been lifted recently, it still can’t afford to put up more than a token amount for an acquisition of Yahoo, which has a $20 billion market cap. Some observers think that Armstrong would like to run Yahoo with backing from private equity firms, who feel that the combination of AOL’s and Yahoo’s assets would produce success where the two companies have struggled separately.

Still, most observers I’ve spoken to think this news is just a trial balloon on the part of shareholders who want to see drastic, rapid change at Yahoo and believe that the threat of a takeover could provide a positive shock to the company’s executive system. But stranger things have happened, and no one is willing to say the rumors are not without merit.

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