Alibaba and the Microhoo Thieves
By
Rick Aristotle Munarriz
March 19, 2008
|
If Microsoft's (Nasdaq: MSFT) buyout offer for Yahoo! (Nasdaq: YHOO) was seen by the software giant as a way to inherit some juicy Asian investments, it had better rethink that strategy.
Reuters is reporting that Alibaba Group -- the company behind China's leading Alibaba.com B2B site and Taobao consumer auction website -- may not be willing to play along. Yahoo! has a 39% stake in Alibaba, along with a 40% stake in Yahoo! Japan and a 10% sliver of South Korea's Gmarket (Nasdaq: GMKT).
The article cites an unnamed "person with direct knowledge of the situation" in claiming that Alibaba will invoke an ownership transfer clause that allows it to repurchase the stake if Microsoft is successful in acquiring Yahoo! later this year.
It's bad timing for Yahoo!, as it gives Microsoft one more reason to either back away from its offer or lower it to reflect the deteriorating market conditions and valuations in online bellwethers.
It's also unfortunate for Yahoo! in that since Alibaba's euphoric IPO last year, shares of the Chinese dot-com maven have gone on to dip below the IPO price.
This isn't necessarily a deal breaker. Microsoft is already draining its balance-sheet greenery with the cash portion of its buyout offer, and proceeds from an Alibaba stake sale would help replenish the coffers. Microsoft would then be free to explore minority stakes in other Chinese Internet stars like Sohu.com (Nasdaq: SOHU) or search-engine leader Baidu.com (Nasdaq: BIDU) that fit more in the mold of what it is getting in Yahoo! itself. Even 51job (Nasdaq: JOBS) would be an intriguing possibility, to give Yahoo!'s HotJobs website an established Chinese presence. If Alibaba is going to be an unwilling partner, Microsoft would be better off assembling its own portfolio.
However, this ultimately cuts against the original rejection thesis issued by Yahoo!. Microsoft offered a ridiculous valuation premium, which Yahoo! rebuffed by claiming that it has unlocked value in its Asian investments. Well, if Alibaba is ultimately liquidated, why would Microsoft pay a premium for the greenbacks it already owns?
This all bodes well for those who wish to see Yahoo! remain independent, but unfortunately also for the shorts who realize that freedom will come with a much lower price tag on Yahoo!'s stock.
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