Ex-AOL Boss Rumored Sniffing Around Yahoo

After surging 7 percent Tuesday on rumors that a former AOL executive wants to acquire Yahoo (Nasdaq: YHOO) for as much as US$30 billion, the beleaguered Internet portal's shares were down nearly 5 percent at $11.02 per share in mid-day trading on Wednesday but closed flat as the market rallied.

Jonathan Miller, former chairman and CEO of AOL, is trying to raise as much as $30 billion to buy Yahoo at about $22 per share, according to reports that first surfaced Tuesday. That's significantly lower than the $33 per share, or $47 billion buyout offer that Microsoft (Nasdaq: MSFT) made last February.

Miller is currently a partner at New York City-based venture capital firm Velocity Interactive Group. Brooke Hammerling, a spokesperson for the venture firm, said the company does not comment on rumors and speculation.

Over at Yahoo, company spokesperson Tracy Schmaler also declined to comment, citing the same policy.

Yahoo Is in Play

Yahoo may be garnering broader interest these days, suggested Colin Gillis, a managing partner at Click Capital Research.

"Yahoo is clearly in play," he told the E-Commerce Times. "Jonathan Miller probably isn't the only player out there looking to raise money and take over Yahoo at this valuation level."

Miller has a solid reputation as a "content and communications guy" due his background at AOL, USA Interactive (predecessor to IAC) and Nickelodeon International, a division of Viacom's (NYSE: VIAb) MTV Networks, Gillis said.

"He's probably eying a deal for Yahoo where you spin [Yahoo Search] out to Microsoft," he speculated.

However, it could be until after the New Year before any significant moves are made.

"[Yahoo] is in the process of a CEO search," Gillis said. "Yahoo's not likely to make any move until it brings in a new CEO, so he or she can make the deal with Microsoft."

There has been press speculation that Miller may be tapped as Yahoo's next CEO, given his strong Internet background. However, he also has a noncompete agreement with AOL that doesn't expire until March 2009, which could affect his ability to take the top spot at Yahoo.

$30 billion! Say What?

If Miller were indeed to offer $22 per share for Yahoo, the company's shareholders would be getting a significant premium over the current stock price. Clearly, however, Yahoo had the chance to get a much better deal from Microsoft earlier this year, Gillis said.

"The whole business, when you strip out minority holdings and cash, is being valued at fire sale levels," he said. "This is an opportunity that Miller and others are looking at."

Still, with the U.S. economy officially in a recession that economists say began in December 2007, raising $30 billion won't be easy.

Most private equity firms have dramatically scaled back their investment levels for the foreseeable future, and banks are more than a little skittish about loaning the vast amount of debt financing that would surely be needed to raise $30 billion.

"Even in a good economic environment, $30 billion is a hard raise," George Clute, a managing director at Vancouver, B.C.-based private equity firm Banyan Capital, told the E-Commerce Times. "In this environment, it's even harder. When Morgan Stanley raises $100 million, they call that a unit. [Miller's] trying to raise 300 units."

One avenue open to Miller could be the hedge fund market, Clute said, but that also has its drawbacks.

"Now you're in the world of the quasi hedge fund, and they use debt a lot," he said. "When it works, it's fabulous. When it doesn't work, it's equally unfabulous."

Even with interest rates at extremely low levels now, obtaining the debt financing needed to fund an acquisition of Yahoo will be difficult, Click Capital's Gillis said.

Next year, though, Miller and other potential Yahoo investors may have better luck.

"There's no appetite among investors to finance these kinds of activities right now," Gillis said, "but with the new Congress and administration, and the amount of liquidity being pumped into the system under the TARP program, liquidity is expected to loosen up next year."