According to a Reuters report this morning, Alibaba Group has signaled to market observers that it is progressing towards an acquisition bid for all of Yahoo! Inc. (NASDAQ: YHOO), by hiring lobbying firm the Duberstein Group Inc. The addition of Duberstein is a necessary step in having any bid for the U.S. Internet portal pass scrutiny by the U.S. government, assuming the bid passes scrutiny by Yahoo shareholders.
Alibaba and Yahoo have had a long, and increasingly adversarial, relationship with each other. Yahoo has had a substantial equity stake (now about 40%) in the Chinese company since the companies formed a strategic partnership in November 2006. As Alibaba’s businesses have grown and Yahoo’s business has faltered, the Chinese company has expressed its interest in buying back most of the stake that Yahoo owns in it. With many analysts assigning more value to Yahoo’s Asian assets — which also includes a 35% stake in Yahoo Japan — then in its domestic business, it has not been surprising that Yahoo’s management has resisted these overtures to divest from Alibaba.
Of course, things over the past several months have changed as Yahoo has been considering takeover offers and is now taking a hard look at a proposal by Alibaba and Softbank — its partner in Yahoo Japan — to buy back the shares that Yahoo owns in them. This complex transaction has been valued at about $17 billion and would not represent the foreign companies acquiring Yahoo. Instead, by divesting their Asian assets it may pave the way for a domestic investor to acquire Yahoo.
Alternately, if Yahoo rejects the proposal to sell back its stakes in Alibaba and Yahoo Japan, the Chinese company has signaled that it could partner with private equity firms to launch a bid to takeover the entire company. This possibility is the one that would face serious regulatory hurdles and is the reason that Alibaba has hired the Duberstein Group, its first instance of registering to lobby the U.S. government.
Although all major acquisitions face regulatory scrutiny, this transaction would likely be intensified as Congress and the Obama administration consider the implications of a Chinese company owning a major U.S. media outlet.
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