(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By John Foley
HONG KONG (Reuters Breakingviews) - Jack Ma's offer to buy Yahoo sounds like a classic revenge fantasy. The founder of Chinese e-commerce operator Alibaba has had a rough ride from Yahoo since the U.S. online media group bought 40 percent of his company in 2005. With Yahoo in disarray, Ma now has a chance to get what he wants -- his shares back. In turn, that could provide Yahoo's long-suffering shareholders with closure.
Yahoo, which ousted plain-speaking Chief Executive Carol Bartz last month, has long looked undervalued. Consider the Alibaba stake alone: a recent investment in the Chinese group by a team of private equity investors valued it at a whispered $32 billion in total -- suggesting Yahoo's portion could be worth $13 billion. That number obviously requires a pinch of salt. But with Yahoo's market capitalization at just $17 billion, including $3.3 billion of cash, the implication is that the rest comes almost for free.
At first blush, it's not clear why Ma would want the whole thing. If there are synergies from combining Alibaba's e-commerce machinery with Yahoo's consumer presence, they would surely have been tried. Ma might in any case find the potential for value creation restricted by U.S. lawmakers, who are unlikely to embrace a Chinese takeover of email data belonging to millions of Americans.
More logical would be a breakup. Ma is the obvious candidate to lead it. If anyone else tried, Alibaba could exercise a right to buy back its stock at a price determined in mediation. That is an effective poison pill. Moreover, anyone selling Ma his stake would risk crystallizing a huge tax bill on Yahoo's potential $11 billion capital gain. By contrast, with Ma as the buyer, the Alibaba stake could feasibly be left sitting within the U.S. group.
Finding a buyer for the American and publicly traded Japanese assets should not be too hard. Yahoo's U.S. franchise may still have value for private equity or a media company looking to buy eyeballs for its consumer platforms, such as News Corp. Microsoft, whose $48 billion offer was foolishly rebuffed in 2008, may even pick through the ashes. However casual Ma's interest may seem, Yahoo's investors should be all ears.
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-- Jack Ma, the founder of Chinese dot-com group Alibaba, said he would be "very interested in Yahoo," causing the U.S. search and email provider's shares to rise 5 percent on Oct. 3.
-- Yahoo owns 40 percent in the unlisted Alibaba. The Chinese founder has tried unsuccessfully to buy back Yahoo's stake, but was rebuffed by Carol Bartz, Yahoo's recently ousted chief executive.
-- Ma transferred Alibaba's online payment system, Alipay, into a vehicle he controlled earlier in 2011 to get around restrictions on foreign ownership of certain kinds of online business.
-- In July, Alibaba's owners announced an agreement under which they would receive $2 billion to $6 billion following any stock market listing or sale of Alipay.
-- Reuters: Alibaba's Ma: "very interested" in buying Yahoo
(Editing by Chris Hughes and Martin Langfield)
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