November 9, 2010 / 7:26 AM / in 7 years

PE group approaches Alibaba's Ma on Yahoo bid: source

HONG KONG (Reuters) - Jack Ma, founder of Alibaba Group, has been approached by a group of private equity investors to gauge his interest in joining a bid to buy Yahoo Inc, a source close to the situation said.

Ma, whose Alibaba Group is 40 percent held by Yahoo and is China’s largest e-commerce company, has yet to make any decision about participating in the potential bid, said the source, speaking on condition of anonymity due to the sensitivity of the situation.

He declined to give more details, including the names of any of the private equity companies involved. The source said it was unclear if the bid attempt was a new one or one in which AOL Inc was said in October to be looking at.

Shares of Yahoo surged 6.5 percent to $17.51 in early trade on Nasdaq on Tuesday.

Yahoo, the No.2 search engine in the United States, is struggling to revive its fortunes after falling behind Google Inc and facing stiff competition from social networking sites such as Facebook.

Much of its value is now tied up in its Asian assets, where its ties are under some strain.

Yahoo, which has a market capitalization of about $22 billion, is not in active discussions with financial or strategic partners, and is not currently reviewing or eliciting any proposals, said another source close to Yahoo, also speaking on condition of anonymity because he was not authorized to speak to the media.

Alibaba spokesman John Spelich had no comment on the matter.

“It was an inevitable thing that Alibaba would get involved,” said Jin Yoon, a Hong Kong-based analyst at Nomura. “What we do question is whether Yahoo’s stake will go from 40 to zero or 40 to a much smaller number. ... There are a lot of moving parts to this.”

TROUBLED PARTNERSHIP

Yahoo bought its stake in privately-held Alibaba Group, parent of Hong Kong-listed Alibaba.com Ltd, in 2005 for about $1 billion.

Estimates of the stake’s current value vary widely, from as low as $4 billion to more than $10 billion.

Alibaba.com has a current market value of about $9.75 billion, while its other two main units -- Taobao, China’s largest e-commerce site and Alipay, China’s largest e-payment provider -- are unlisted.

Goldman Sachs values Taobao alone at about $7 billion.

The tie-up between Alibaba and Yahoo was forged by Ma with Yahoo’s co-founder Jerry Yang, with whom he had a strong personal relationship.

But ties between the firms have soured in recent years as Yang took a non-executive position and Carol Bartz came in as CEO. Ma previously approached Bartz and Yahoo about a sale of their stake, but was rebuffed.

Yahoo has said repeatedly in recent years that it is not interested in selling the stake, and prefers to have its interests in China represented through a local partner like Alibaba.

A source told Reuters last month that several private equity firms had approached Internet and media companies including News Corp and AOL to gauge their interest in buying Yahoo.

Some of the talk since then has centered on two of Yahoo’s most valuable assets, its 34.5 percent stake in Yahoo Japan and its Alibaba stake.

Both companies could potentially play a role in any such takeover bid due to their connected interest in Yahoo.

Yahoo’s stake in Yahoo Japan is currently worth nearly $7 billion which, when combined with its Alibaba stake, would account for more than half of Yahoo’s own market value.

In a related move, Ma may also be trying to line up financing to buy the 40 percent of the company held by Yahoo, another source with knowledge of that situation said.

Ma had been talking with private equity companies in an effort to assemble a special-purpose acquisition fund for the express purpose of buying the Yahoo stake, said the source, declining to be identified because the talks were private.

“Jack Ma is keen to get private equity funds involved in the deal, mainly for financing,” said the industry source with knowledge of the negotiations between Jack Ma and potential investors.

CLSA analyst Elinor Leung noted that Ma has made previous attempts to buy out Yahoo’s stake.

“The management has always wanted control of the company and will continue to find ways to regain control,” she said. “Yahoo could be losing its most valuable asset if Ma succeeds.”

Sources told Reuters on Monday that AOL has tapped Bank of America to explore strategic options including a potential merger with Yahoo.

Additional reporting by Jennifer Saba in New York; Leonora Walet in Hong Kong and Melanie Lee in Shanghai; Editing by Muralikumar Anantharaman, Lincoln Feast, Dave Zimmerman

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