Private-Equity Firms Ask Alibaba CEO to Join Yahoo Bid
A group of private-equity investors is calling on the CEO of Chinese Internet giant Alibaba Group (ALBCF) to throw his support behind a buyout offer for Yahoo (YHOO), according to a Reuters report. Alibaba founder Jack Ma (pictured) is reportedly considering his options, which also include Alibaba raising its own financing to buy back the 40% stake that Yahoo holds in his company.
Yahoo's shares jumped as much as 7% to $17.60 in Tuesday morning trading, as investors apparently liked the prospect of Alibaba being pulled into the mix.
Kohlberg Kravis Roberts is the latest private-equity firm to express its interest in Yahoo, and the one that approached Ma, according to a report in the New York Post, which noted that KKR is not part of the reported discussions involving AOL (AOL) and private-equity firms Silver Lake Partners and Blackstone about a potential Yahoo acquisition. (AOL is the publisher of DailyFinance.)
It comes as no surprise, however, that any potential Yahoo buyer would want to fold Alibaba into the equation. It's one of Yahoo's greatest assets, along with Yahoo Japan, in which Yahoo holds nearly a 35% stake. In addition, Alibaba has been champing at the bit to get out from under Yahoo's thumb, previously offering to buy back its shares only to be rebuffed by Yahoo.
Ma is also reportedly holding talks with private-equity firms to create an acquisition fund with the defined purpose of purchasing Yahoo's Alibaba stake, which some analysts have valued at $11 billion. When combined with its Yahoo Japan holdings -- valued at nearly $7 billion, according to Reuters -- that gives Yahoo's Asian investments a total value of $18 billion - about three-quarters of the value of Yahoo's $23.6 billion market cap.
Carol Bartz's Strained Relationship With Alibaba
Yahoo CEO Carol Bartz, however, believes the Alibaba stake has the potential to become even more valuable further down the line once the Asian e-commerce player gets around to floating its eBay rival, Taobao, and its PayPal competitor, Alipay, as potential IPOs.
But Bartz's relationship with Alibaba is strained and could potentially become worse. Yahoo late last month was entitled to receive a second seat on Alibaba's board of directors, and Bartz has said she may be the one to get it.
Yahoo's board, however, is weighing whether that would be the right move, given Bartz's blunt style and tendency to spice up her language with profanity, according to people familiar with the board's thinking. Yahoo co-founder Jerry Yang, who initially struck the investment deal in Alibaba, currently represents Yahoo on the Alibaba board.
Seeking Western Expertise
One executive recruiter based in China made these general observations about the growing trend of placing Americans on the boards of Chinese companies. As Chinese companies with blue-chip cachet launch IPOs and go global, they are increasingly seeking out Americans to serve on their boards, said Steve Mullinjer, an executive recruiter from Heidrick & Struggles.
"They need knowledge, relationships and market access that senior Western NEDs [non-executive directors] can provide. In some cases this is driven by corporate window dressing (i.e. valuation/compliance benefits driven by IPO process). Other times by tacit recognition they lack the skills/knowledge to run this themselves," Mullinjer said in an email interview.
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He estimated the number of Americans on Chinese boards has probably quadrupled in the past five years, due to IPOs and global expansion by these companies. But he notes that the role of board members in China is quite different than it is in the U.S: They providing technical and advisory guidance, but lack the obligations of a fiduciary relationship with shareholders. In China, the system of corporate governance is far more opaque, Mullinjer noted.
While not addressing Bartz or any other executive specifically, Mullinjer had this to say about whether American bluntness might cause problems on Chinese boards: "This situation is quite unlikely. [The] impact is often softened due to language barriers. This type of etiquette breach would not normally be tolerated. Cross-culture sensitivity is far more extreme in a Chinese company board structure."
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