Yahoo sale process heats up as PE firms sign on

Sat Nov 5, 2011 1:46am IST

The headquarters of Yahoo Inc. is pictured in Sunnyvale, California, May 5, 2008. Yahoo has signed confidentiality agreements with several parties interested in buying all or part of the Internet company, according to people familiar with the matter. REUTERS/Robert Galbraith/Files

The headquarters of Yahoo Inc. is pictured in Sunnyvale, California, May 5, 2008. Yahoo has signed confidentiality agreements with several parties interested in buying all or part of the Internet company, according to people familiar with the matter.

Credit: Reuters/Robert Galbraith/Files

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REUTERS - Yahoo has signed confidentiality agreements with several parties interested in buying all or part of the Internet company, according to people familiar with the matter.

The Sunnyvale, California-based Internet pioneer said potential buyers had to sign an agreement by Friday to be allowed a close look at Yahoo's finances. The Friday deadline could be extended into next week, however, to provide more time for other firms to sign on, the sources said.

Some private equity firms have balked at signing Yahoo's nondisclosure agreement because of restrictions that would prevent them from forming consortiums, people familiar with the matter told Reuters last week.

At least five of the private equity firms interested in Yahoo had not signed a confidentiality agreement as of Thursday, several people said.

Multiple sources cited Silver Lake Partners, Providence Equity Partners, Bain Capital, Hellman & Friedman and Blackstone as the holdouts. They are said to be exploring a buyout of Yahoo alongside Yahoo's Asian joint venture partners Alibaba Group and Softbank Corp.

The private equity firms that did relent and sign an agreement have heavily negotiated its terms, the sources said, though it was not clear exactly what amendments had been made.

These people declined to name precisely which firms had signed the nondisclosure agreements, but one person close to the process said only that "multiple parties" have agreed to the provision.

Other private equity firms interested in Yahoo include KKR, TPG Capital and Carlyle Group. Sources would not confirm if any of them had signed the confidentiality agreement, though a second person familiar with the situation said those three firms and Providence are "among the hottest firms" involved in the process. The New York Times reported late Thursday night that TPG had indeed signed the agreement.

Strategic parties including Alibaba, Microsoft Corp and Google, have also taken part in the still-developing discussions surrounding Yahoo, sources have said.

Private equity firms have indicated a willingness to commit around $1 billion in equity as part of a transaction, according to several people familiar with the matter.

They are also looking at ways to partner with their limited partners, including the Canada Pension Plan Investment Board and the country's Public Sector Pension Investment Board. The latter recently took part in a deal with Apax Partners to buy Kinetic Concepts Inc.

"Everybody has a different approach to it, some involving banks, others not involving banks ... but most of the private equity firms are not going to team up with other private equity firms as part of a club deal," one of the sources said.

The signed agreements could help spur private equity firms and others to explore an acquisition of Yahoo's assets, even as Yahoo's board of directors considers alternative plans such as selling a 20 percent minority stake in the company.

Under that structure, the purchaser of the stake and Yahoo's two co-founders -- Jerry Yang and David Filo -- would then increase their combined stake to around 40 percent to 45 percent through a large share buyback that would reduce the number of Yahoo shares outstanding, several people familiar with the matter have said. Yahoo would finance the buyback through borrowing, sources said previously.

Under that scenario, Yahoo would keep its Asian assets -- its 40 percent stake in Chinese e-commerce company Alibaba and its 35 percent stake in Yahoo Japan, a joint venture with Softbank, one of the sources said at that time.

The minority investment plan is one of several options being considered by the board and is an alternative to a sale of the company, people familiar with the matter have said.

That structure would buy Yahoo time to seek out partnerships with social media companies like Facebook, Twitter and Yelp or move into mobile, allowing Yahoo to turn around the business without having to sell the company, these people have said.

Another option includes Yahoo selling its Asian assets to its joint venture partners and returning the proceeds to its shareholders through a large share repurchase or big one-time dividend, one of the people said.

"It's starting to make some sense strategically as well. But the problem here is that the Asian assets are much more interesting businesses than the main Yahoo businesses," the source added.

Any deal for Yahoo would be complex due to Yahoo's stakes in Alibaba and Yahoo Japan. Yahoo also has a search advertising partnership with Microsoft that would figure heavily into any deal.

Yahoo's board of directors fired Chief Executive Carol Bartz in September and tasked Goldman Sachs and Allen & Co to begin a "comprehensive strategic review" to return the company to growth.

(Reporting by Nadia Damouni and Alexei Oreskovic in San Francisco, and Soyoung Kim in New York; Editing by Peter Lauria, Phil Berlowitz and Steve Orlofsky)

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