Yahoo Plans Minority Stake Sale to Buy Time

Yahoo! Inc. (NASDAQ:YHOO) is planning to sell a minority stake to a private equity firm and efficiently keeping control, with an aim to buy time to turn fortunes for the internet group, a source familiar with the subject said.

Yahoo has been pursuing strategic alternatives to offset losses since September when the board fired its chief executive, Carol A Bartz. The leveraged capitalization idea is one among several other options for Yahoo. Some people feared that it is too early to make a judgment on Yahoo’s fate and the leveraged capitalization is only among the several other options.

Under such a plan, one of the possible scenarios considered by the board is to have a private equity firm buy about 20 percent stake in the company in exchange for an mixture of equity and bank debt, and partner itself with Yahoo co-founders David Filo and Jerry Yang, who combined own another 9.5 percent of the internet company, sources said

Maintaining the private equity’s initial investment under 20 percent would disappoint some of the shareholders and potential bidders who have been hoping for a sale of the internet company. After a stock buyback, the private equity firm and the two co- founders would then increase their combined 30 percent stake into a 40 percent to 45 percent stake that would minimize Yahoo outstanding share figures, added people.

Private equity firms are told by Yahoo’s financial advisers that the leveraged recapitalization and buybacks will facilitate possible ways to again gain control of Yahoo without having to actually acquire the internet company. Yahoo’s currently has a market capitalization of about $2 billion. A second source said that under this plan Yahoo will also buy more time to seek partnerships with social networking sites like Twitter, Yelp and Facebook or else move into mobile.

Sources familiar with the matter said that Mr. Yang focusing on initiatives on his own has already held meetings with private equity firms. Others claim, saying that the strategic review committee is in charge and Yang’s moves are on behalf of the board.

Previously several private equity firms like TPG Capital, Silver lake Partners, Providence Equity Partners and Blackstone Group showed interest in acquiring with Yahoo, however their response to the current proposed deal is still unclear.

According to these sources, strategic firms like Microsoft, Alibaba and Google have also taken part in the ongoing discussions relating to Yahoo. Even as Yahoo pursues options, on Tuesday Yahoo announced the small acquisition of Interclick Inc. for $270 million.

Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.