Microsoft, Alibaba Kick Yahoo’s Tires

Looks like a couple of disparate groups are forming to bid for Yahoo. Microsoft is working with Silver Lake and one of Silver Lake’s investors, the Canada Pension Plan (CPP), to put together a buy proposal, according to sources who spoke to The Wall Street Journal.

The proposal would include several billion dollars from Microsoft, with additional financing arranged by Silver Lake and the CPP Investment Board.

On the other side of the world, Alibaba has put together a group that’s looking to expand its investment in Yahoo to a full purchase, the Journal reported. Alibaba is run by Jack Ma, one of China’s best-known entrepreneurs.

Even though Yahoo has been struggling in recent years, it has its attractions — chief among them, the 700 million visitors who go to Yahoo news, sports and finance sites each month. Yahoo also has advertising power in search and display, even thought those assets have been shrinking lately.

During an interview at Web 2.0 on Tuesday, Microsoft CEO, Steve Ballmer laughed when asked if he was glad an earlier bid for Yahoo had failed. Redmond may be laughing all the way to the bank if it turns out it can buy the company now for a fraction of the premium it was willing to pay just a few years ago.

Neither company responded to the E-Commerce Times’ requests for comment by press time.

Running Yahoo Better Than Yahoo Can

While Yahoo is an aging brand that has slipped precariously from its once-mighty role as one of the early Internet giants, the company still has significant traffic and considerable value in news and search. Ultimately, its value in the market will depend on the deal’s bottom line.

“At the right price, anything is attractive,” Rob Enderle, principal analyst at the Enderle Group, told the E-Commerce Times. “Microsoft has one of the few executive teams who could manage Yahoo and turn it around.”

The executive teams at MSN (with news) and Bing (with search) could manage it, he suggested.

“Historically, they have done better than Yahoo in the area of news and search,” noted Enderle. “They’ve spent a lot of money on Bing, and they would not want to see Yahoo search to go to someone else.”

Since Alibaba and Yahoo already have a partnership, an Alibaba purchase of Yahoo would give it control of the relationship and a presence in the United States.

“That may be part of the reason Microsoft is interested,” said Enderle. “They don’t want a new U.S. competitor. That’s where the drama is.”

To further complicate matters, it could be that Yahoo’s founder is cool to the idea of a sale.

“Rumors are that Jerry Yang is pushing back and saying Yahoo doesn’t need to be sold,” said Enderle. “If Microsoft gets the sense Yang isn’t going to throw his body into a sale, they could back out.”

Different Stakes

Given its US$20 billion valuation, it’s likely that some potential suitors would have to partner up in order to buy Yahoo.

“That’s not necessarily true, but the suggested share price obviously limits the number of potential individual suitors,” Charles King, principal analyst at Pund-IT, told the E-Commerce Times. “If Yahoo expresses an openness to team or group offers, it could increase the number of bidders and could help drive-up the company’s market value.”

As for what Microsoft would get out of a Yahoo buy, it’s the well-known and branded services and content, King said. “Plus, Microsoft would get a sizable host of loyal customers and users who could help drive up the value of Microsoft’s online and search advertising.”

As for Alibaba, it has one big additional motivator: the U.S. market.

“Alibaba would get the same benefits as Microsoft, plus an established presence in the United States,” said King. “Though the United States is quickly being eclipsed by China in terms of online users, it remains a hugely attractive commercial market.”

Yahoo still has a decent brand name, King pointed out, though he conceded that Yahoo’s users tend to be somewhat older than audiences in popular mobile markets.

“But they’re also better off and have more disposable income, he noted. “In the hands of the right buyer, Yahoo should offer a lot of benefits.”