Yahoo: A Buyout Journey as Competition Increases

In February 2008, Microsoft (NASDAQ:MSFT) made an unsolicited bid of $31 per share ($44.6 billion) for internet portal giant Yahoo! (NASDAQ:YHOO).  Yahoo did not accept the offer, which led to Microsoft raising its bid to $33, but once again Yahoo did not bite.  Today, Yahoo only trades near $16 per share.  The decline in Yahoo shares over the past few years has sparked more buyout interest.

Now, private-equity firm Thomas H. Lee Partners is considering a bid for Yahoo.  THL is planning to do a leveraged buyout of Yahoo’s US business, which could be worth nearly $6 billion.  THL has experience running other media outlets such as Univision, Clear Channel, and Nielsen Holdings (NYSE:NLSN).  The leveraged buyout plan is a different approach, compared to other private equity firms such as Silver Lake, KKR (NYSE:KKR), and TPG, which all plan to place cash bids for a minority stake in the online giant.

Although Yahoo did not accept Microsoft’s offers in 2008, Microsoft still has a hand in the current buyout speculation.  Private-equity firm Silver Lake is currently working with Microsoft to bid for a minority stake in Yahoo.  Andreeseen Horowitz, a venture-capital firm, may also join Silver Lake.

Yahoo is currently without a COO after giving the boot to CEO Carol Bartz in September.  The company continues to focus on buyout offers instead of rushing to replace the former CEO.  Bloomberg reports that Yahoo “ is exploring strategic options after firing Chief Executive Officer Carol Bartz, who faltered in a drive to repel competition from Google (NASDAQ:GOOG) and Facebook Inc.  Yahoo’s advisers asked that bids be submitted this week, people close to the situation have said.”  Yahoo also competes with AOL (NYSE:AOL), and will receive more competition from Facebook, as the social giant plans to launch a possible $10 billion IPO next year.

Yahoo’s current valuation is approximately $19 billion. A host of confidentiality agreements are expected to be signed this week as circling suitors look to examine the company’s books.  Shares have declined nearly 5% year-to-date, and are down 38% over the past five years.  In comparison, Facebook could be valued at $100 billion through its IPO next year.