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Alibaba Turns Yahoo Into Buyout Bait

CEO Jack Ma "very interested" in buying Yahoo


Yahoo AlibabaWithout a CEO — or a coherent strategy — Yahoo (NASDAQ:YHOO) certainly is vulnerable to a takeover. It also helps that the company’s stock is trading at a cheap level, coming to about 15 times earnings.

No doubt, the company has many potential suitors. One interesting play would be for a cable company, like Comcast (NASDAQ:CMCSA), to make a move on Yahoo. Or, the company might undergo some type of leverage buyout. Even legendary Internet pioneer Marc Andreessen is in on the buzz, with reports saying he might help finance the deal and become the CEO.

But this is all just idle speculation. And Jack Ma, CEO of Chinese Internet company Alibaba, apparently doesn’t want to waste his time on such things. Instead, he came out and said he was “very interested” in buying Yahoo — which currently owns a large share in Alibaba.

How’s that for executive leadership?

Ma has a pretty good understanding of the potential of Yahoo, which purchased a 40% stake in the China-based Alibaba in 2005 for $1 billion. As of now, the investment is worth about $13 billion (based on a recent financing from DST Global, Silver Lake and Temasek). Consider that Yahoo’s market value is only $17 billion.

What’s more, Ma has some big-time leverage. Based on the equity agreements, he has the “right of first refusal” on buying back the Alibaba stake if there is any change of control in Yahoo. Thus, Ma will be a key decision-maker on any deal.

A combination of the two Internet giants would make a lot of sense. While Alibaba does have a thriving business-to-business platform in the U.S., it definitely could benefit from a much stronger consumer presence. This should be helpful in dealing with competitors like Google (NASDAQ:GOOG) and Facebook.

Still, the deal could face some stumbling blocks. First of all, the financing environment has chilled, and there have been few major M&A deals lately. At the same time, Chinese stocks have seen tremendous volatility. Just look at the recent performances of companies like Baidu (NASDAQ:BIDU) and Sina (NASDAQ:SINA).

Yahoo and Alibaba also have had a rocky relationship. One of the most contentious issues was the ownership rights of Alipay. Basically, Ma transferred the asset to himself without getting approval from Yahoo. The parties ultimately were able to come to a settlement, but it did create an icy situation.

The most difficult challenge might be the political headwinds. Will Congress intervene? Might there be concerns about American Internet privacy and even national security? Over the years, the U.S. federal government has been willing to flex its muscles when it comes to the Chinese buying high-profile assets.

So even if a deal gets done — and it does seem likely — it likely will be complicated and take months to put together. Between now and then, it’s hard to tell how Yahoo’s stock will fare — though it is up 5% early Monday on the Alibaba news.

Tom Taulli is the author of “All About Short Selling” and “All About Commodities.” You can also find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.

Article printed from InvestorPlace Media,

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