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Bidders balking at Yahoo's restrictive buyout NDA

updated 10:20 pm EDT, Wed October 19, 2011

Search giant trying to avoid 'consortium' bid

A non-disclosure agreement that goes so far as to prevent "cross talk" among potential bidders for search engine Yahoo has several potential suitors complaining and possibly losing interest, reports say. The company, currently valued at about $20 billion, instituted the "no cross talk" provision in its NDA with the hopes of encouraging competition among companies wanting to bid for it and keep auction tension high rather than having bidders collaborate and present a single "consortium" bid.

The Wall Street Journal, however, reports that such a consortium may well be coming together anyway -- consisting of a private equity firm, a pension plan board and Microsoft -- to place a bid for the company, which has said it is not opposed to joint bids but wants to avoid having only a single, large-group bidder. The possible joining of Microsoft, Silver Lake Partners and the Canada Pension Plan investment board could easily supply the capital to beat out any other bids. All three companies have worked together before on other deals.

Other companies, such as private equity firms Bain Capital, Providence Equity Partners, Blackstone Group and Hellman & Friedman LLC have been trying to align themselves with a strategic partner (such as Microsoft or AOL or Chinese e-commerce firm Alibaba, the latter of which currently owns 40 percent of Yahoo) to buy out the company, whose current pricetag is too high for any but the largest single technology firms to be able to afford. Microsoft had at one time been very interested in buying Yahoo outright, but got most of what it wanted in a deal with the company and is now content to be a partner with another firm in managing the search and internet services company.

Yahoo is aware that a consortium is likely to be the ultimate buyer, but wants to maintain enough control so that at least two consortiums have to compete against each other, hopefully driving the price higher. In 2008, Microsoft was said to have offered as much as $33 per share, or $47.5 billion, compared to the $16-18 per share the company is now valued at. The stock actually closed at $15.94 on the Nasdaq exchange today.

The "no cross talk" provision makes it difficult for interested parties to trade information gleaned from detailed financial details from the company, which is expected to be circulated to bidders later this week. Buyers will want to know more about the contractual obligations of the company to its current investment partners (Alibaba and Softbank), along with details of its current search agreement with Microsoft, which has seen Yahoo's former main business subsumed by the Redmond giant's own search engine Bing.

The provision could increase pressure from shareholders on co-founder Jerry Yang to give up control of the company, which he only recently re-gained following the firing of CEO Carol Bartz. Yang has frequently been accused of not acting in the best interest of shareholders, starting with the derailed Microsoft talks in 2008. Yang has expressed support for the idea of private equity firms taking the company private, seeing it as a way to retain his position in the company.

by MacNN Staff




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