Yahoo Huddles as Firms Show Interest - Wall Street Journal

Yahoo Inc., its stock rising on news that potential suitors are exploring deals for the company, is sounding out the seriousness of the interest, people familiar with the matter say.

In recent weeks, several private-equity firms—including Silver Lake Partners and Blackstone Group LP—have been toying with the idea of taking Yahoo private, including a scenario where they join forces with AOL Inc. to acquire Yahoo, according to people familiar with the matter. The firms have discussed the scenario with AOL.

Getty Images A Yahoo billboard in San Francisco.

Yahoo stock rose 6% Wednesday in unusually active trading. Then, after news reports about the interest, the shares spiked 10% Thursday morning, before slipping back and ending the day at $15.93, up 4.5%.

The interest among financial firms is preliminary and the parties have yet to approach Yahoo about any deal, people familiar with the matter say. They cautioned that a deal would be especially difficult to pull off given the complexities involved in spinning off Yahoo's Asian assets and avoiding a tax hit.

Yahoo has asked Goldman Sachs to find out if the expressions of interest are credible and—if any approach becomes formal—what steps to take, a person familiar with the matter said. The person characterized these discussions as routine in response to market speculation.

Yahoo has an existing relationship with Goldman, which helped fend off Microsoft Corp.'s advances in 2008.

The situation compounds the management challenges facing Yahoo chief executive Carol Bartz, who has been hit with a wave of executive departures and who some shareholders and board members feel isn't acting fast enough to turn around the Sunnyvale, Calif., company.

Yahoo declined to make Ms. Bartz available for an interview.

The barriers to any deal remain high. Yahoo has a market capitalization of roughly $21 billion and even if the company sold off some businesses, the price of a deal could be higher than many private-equity firms would stomach, they said.

Private-equity firms have been discussing one scenario that would entail Yahoo selling its valuable stake in Chinese Internet giant Alibaba Group back to Alibaba. Some analysts peg the value of that 40% stake at about $10 billion. The remaining company could be merged with AOL and taken private.

Bloomberg News AOL's CEO, Tim Armstrong, left, has been focusing on generating original content to package to advertisers. He has suggested Yahoo should do the same.

Some analysts said Yahoo could end up selling that stake on its own to appease some shareholders who have long agitated for such a move.

Alibaba sounded out eBay Inc.'s interest in a deal for Yahoo in September, according people familiar with the matter, but there were never serious discussions.

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The potential suitors believe a Yahoo-AOL combination could yield big cost savings, boosting the profitability of their online advertising businesses. AOL and Yahoo both run businesses that sell graphical ads, and offer email and instant-messaging services and a range of media properties on subjects ranging from celebrity gossip to news.

AOL chief executive Tim Armstrong has said privately that he thinks Yahoo could benefit from pursuing the strategy he is pushing at AOL: focusing on generating lots of content to package to advertisers. An AOL spokeswoman declined to comment.

Analysts say a Yahoo-AOL merger could create a strong competitor in the market for online display ads, which include video, banner and interactive ads. That market is expected to be roughly $20 billion world-wide this year, but many companies believe it could grow to $50 billion over the next few years as more video content moves online.

Bloomberg News Yahoo CEO Carol Bartz is under pressure to speed up turnaround efforts. The company also has suffered a recent wave of executive departures.

The market is fragmented, with no dominant player.

Yahoo and AOL both sell display ads for their own Web properties, with Yahoo on track to sell about $2 billion worth this year and AOL on track to sell $500 million, according to Marianne Wolk, an analyst at Susquehanna Financial Group.

Yahoo's Right Media display advertising exchange could also benefit from an influx of AOL inventory. The stock-market like system provides a way for advertisers to buy graphical ads across an array of websites through an auction.

—Amir Efrati contributed to this article.

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