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Yahoo's Asian Negotiations Fly Off the Tracks

Yahoo's Asian Negotiations Fly Off the Tracks

A deal between Yahoo and two Asian partners that could save the Internet portal billions in taxes has reportedly stalled out. Although it's still possible negotiations could restart, they've apparently hit an impasse for now. "This is something that has taken up a lot time and energy of the management team and board. Investors have been clamoring for it for many years now," B. Riley and Co.'s Sameet Sinha said.

By John P. Mello Jr.
02/15/12 9:14 AM PT

A deal worth billions to Yahoo has reportedly hit a snag.

The deal between Yahoo and two of its Asian partners, China's Alibaba Group and Japan's SoftBank, has reached an impasse, according to a report Tuesday in The Wall Street Journal. The accord would, among other things, save Yahoo US$4 billion in U.S. taxes.

Shareholder Pressure

Yahoo's investment in Alibaba and Yahoo Japan is estimated at $17 billion, and Yahoo likely aims to turn that investment into cash that can be used to increase the value of the investments made in the company by its shareholders.

"They're obviously under significant pressure to do something nice for shareholders," Sameet Sinha, a securities analyst with B. Riley & Co., told the E-Commerce Times.

It's not surprising that the deal has stalled, he continued, because it's a complex one involving lots of moving parts and multiple players, time zones and egos.

Meanwhile, the pressure to do something for investors was taken up a notch on Tuesday when shareholder Daniel Loeb, who heads Third Point, a hedge fund that owns just over 5 percent of Yahoo's outstanding shares, filed a slate of nominees with the federal Securities and Exchange Commission (SEC) to replace four Yahoo board members who have announced their exists from the company.

Important Deal

While the deal is an important one for Yahoo, it isn't essential to new CEO Scott Thomspon's plans to lift the company out of the doldrums, Sinha contended.

"[The deal] is extremely important," he said. "This is something that has taken up a lot time and energy of the management team and board. Investors have been clamoring for it for many years now, and it would be a nice bonus for them."

It could also provide Yahoo with cash for acquisitions, he continued, but since large acquisitions haven't been part of the company's turnaround strategy in the recent past, if the deal falters, it won't significantly affect that strategy.

Nevertheless, having more cash on the books will be better for the company's turnaround efforts, maintained Colin Gillis, a securities analyst with BGC Financial. "They have some cash on their balance sheet, but if they want to do anything major, they could certainly use more cash," he told the E-Commerce Times.

Thompson's Dilemma

Negotiations on the Asian deal began last fall, before Thompson became CEO of Yahoo. That's prompted speculation that Thompson wants to pull out of the deal because the value it would create for shareholders is far less than the value it would create for the public equity firms that would be finalizing the deal.

Thompson has a lot more important things on his plate than Yahoo's minority stake in Alibaba, Gillis observed. "He has to figure out how to turn this company around," he told the E-Commerce Times.

On the other hand, the Asian assets aren't core to Yahoo's business and selling them would put needed cash on the company's balance sheet, he added. "This deal is a great way of doing that," he said.

Yahoo's Asian deal has been derailed before. It entered a hiatus at the end of last year, but was revived again this year. Does it have another life? Sinha thinks so. "Both sides are motivated to get this back on track," he predicted.


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