Microsoft wants in on Yahoo, but it is playing it safe. It is rumored that they want to buy preferred stock in Yahoo and provide financial support to their deal partners. In this way, they are making a move to take over the company. However, it is not all so clear.
The Redmond tech giant has been in negotiations with Canada Pension Plan Investment Board and a private equity firm, Silver Lake Partners, about a joint bid. This is not unusual news, but the structure is a strange one. Microsoft does not want to own Yahoo. Instead, they want privileged influence over the future of the company for financing the purchase.
This is not the first time Microsoft has tried to grab Yahoo. It made a bid for the company, that failed, but resulted in a joint Internet search partnership three years ago. Microsoft verified that they would not own common shares in Yahoo, under the current proposal.
Banks would provide the largest amount of cash for the buyout, but Microsoft would fork over billions to buttress the transaction. They have not revealed how much they are willing to pay, but they are dead serious about their direction.
Evidently, Microsoft is in discussions with others who are also planning bids. Silver Lake is not the only group Microsoft would be willing to back to snatch Yahoo up. Microsoft will have control, one way or another.
Yahoo has received no formal proposal. However, it is examining possibilities for its future. They want to look at all of the options available to them. These include selling off the company completely or taking a minority investment from those interested. However, they could also just sit on their hands.
Microsoft is not stupid. They have made it clear to Silver Lake, that while they are willing to provide funds, they would want to minimize their risk in the face of the deal falling apart. If Microsoft owned preferred stock in Yahoo, they would receive their benefits prior to anyone holding common stock, but also ahead of certain kinds of investors as well.
Microsoft could also recoup the investment through a high interest rate. If the returns on the investment were too limiting, Microsoft would still make money on the deal.
Microsoft has the advantage in these times of scarce funds for investment. For private equity investors, Microsoft could be their best friend to fund their investments.
Yahoo’s market capitalization stands at nearly $20 billion, and makes the buyout deal with Silver Lake quite difficult. The equity and debt needed to complete this size of buyout is the single biggest roadblock. This may prevent it from becoming a formal bid at all.
Those interested in Yahoo admit that the value of Yahoo is much lower than the $16.12 share price on the company at this moment. This share price includes an optimistic hope that the company will be sold. The “deal premium” was slapped on when the former CEO, Carl Bartz was fired and the company began reviewing its options.