3 Frontrunners in Bidding War for Yahoo

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On Sept. 6, Carol Bartz was unceremoniously fired from her post as CEO of Yahoo (NASDAQ:YHOO) — via telephone, no less. And now that the market has had almost two weeks to digest the sound bites and debate the tech icon’s future, there appears to be a clear focus on who will buy Yahoo — not who will take over as CEO.

Yahoo, of course, stubbornly refused a $44.6 billion buyout offer from Microsoft (NASDAQ:MSFT) in early 2008. The current market capitalization of the company is less than half that, at about $18.4 billion. The cheaper price tag this time around means a much more interesting group of prospective buyers.

So who could acquire Yahoo? Here are three frontrunners, along with their plans for the company:

Silver Lake Could Buy Yahoo and Sell it for Parts

According to reports this morning, private equity firm Silver Lake is looking to snap up Yahoo. According to inside sources, Silver Lake would immediately sell off Yahoo’s operations in Asia, then spend some time and money trying to turn around the U.S. operations — ultimately selling those, too.

Yahoo holds a little less than half of Alibaba Group, a privately held group of Chinese Internet-based businesses that include online storefronts, cloud computing services and web search engines. That stake would indeed be easy to sell and attractive to companies looking to build their presence in the growing Chinese e-commerce scene. There’s also Yahoo Japan, the joint venture between the American tech giant and Japanese telecom giant SoftBank (PINK:SFTBF).

As a private equity firm, Silver Lake doesn’t really have any grand vision for Yahoo. It simply wants to break up the company and sell the pieces for more than it paid for the buyout. The scheme of selling prime parts like the Asian business now then polishing up the less attractive parts during the next few years obviously has risks, but it is simpler than trying to overhaul Yahoo in a way that makes it competitive in today’s new Internet landscape.

Alibaba Could Buy Yahoo to Wrest Back Asian Operations

Of course, since the profitable Asia assets of Yahoo are the biggest selling point to potential suitors, it is not outside the realm of possibility that Alibaba could make a run at Yahoo itself — thus clawing back the 43% stake that Yahoo owns.

The Chinese Internet powerhouse is worth an estimated $27.5 billion by recent estimates. And as mentioned, the $18.4 billion market cap of Yahoo means Alibaba would have to stretch to make a deal happen — but it could very easily get it done, given the right conditions. Alibaba CEO Jack Ma has long said he wanted to buy back Yahoo’s stake in his company, and this could be his shot.

Of course, what Alibaba does with the struggling U.S. operations is unclear. Perhaps Ma and Alibaba would simply put them on autopilot, or perhaps they would put Yahoo’s domestic businesses on the block for fire-sale prices. It seems unlikely the company would take its eye off the ball in Asia to tackle the challenges of the U.S. digital media scene.

Microsoft Could Buy Yahoo Search, Sell Mail and Content to AOL

Perhaps the only alliance that would focus on the potential of Yahoo’s U.S. footprint would be a buyout from once-jilted Microsoft. The company already has a partnership with Yahoo to run Internet searches, and a buyout would make the joint venture wholly a Microsoft operation. Collectively, Yahoo Search and Microsoft’s Bing account for about 30% of search market share — no small number in the war against the giant that is Google (NASDAQ:GOOG).

On top of that, Yahoo assets include email, instant messaging and news and information portals that generate decent revenue from advertising and, according to ComScore Inc., were viewed by 674 million people in July. Microsoft has been struggling to find out the best way to use its legacy Hotmail email and MSN family of sites, and a content partnership with Yahoo could be an interesting way to breathe new life into the operations.

Of course, a simpler solution would be to simply parcel off the mail and content businesses to AOL (NYSE:AOL), which has hung its hat on display advertising.

Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.


Article printed from InvestorPlace Media, https://investorplace.com/2011/09/yahoo-bidding-war-carol-bartz-alibaba-microsoft/.

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