A Sale of Yahoo! Not So Fast

The deal chatter Thursday morning is centering on reports by All Things D and The Wall Street Journal that buyout firms are contemplating teaming up with AOL or the News Corporation to buy Yahoo. (Shares in Yahoo jumped nearly 15.8 percent in after-hours trading to $15.25.)

But hold on a moment. A deal is not happening anytime soon.

The trial balloon in the media is coming from a handful of bankers and investors who have tried to gin up interest in a deal for months. And at least a few of the named “suitors” in The Journal’s story, like the Blackstone Group, have already passed on the idea.

More importantly, Yahoo first heard about the rumors from the media and its own bankers at Goldman Sachs, according to people close to the company.

That doesn’t mean bankers haven’t been running the numbers. And companies like AOL and the private equity firm Silver Lake are intrigued with the idea. But making a deal work would require fancy footwork and risk. AOL’s market value is about $2 billion, while Yahoo’s is now about $20 billion before a premium.

The back of the envelope math requires that Yahoo sell its 39 percent stake in Alibaba, one of China’s biggest Internet companies and considered one of the company’s biggest and most desirable assets, which could be worth $12 billion. That would put Yahoo closer to a more-reasonable $8 billion, again before a premium.

But Yahoo believes that Alibaba will fetch more in a public spinoff down the road than in a sale now, so why sell now? And while Alibaba would love to buy out Yahoo’s stake in itself, such a move would require the Chinese Internet company to raise yet more capital, increasing the potential price of a deal. (The two sides ended the most recent round of talks in June.)

It’s possible that the emergence of the reports will prod a sale process along, at some point down the road. But for the moment, talk of a deal is still pie-in-the-sky.