A Microsoft-Yahoo-Alibaba hookup just makes sense

Yahoo's pieces are worth more than the sum -- a fact not lost on Steve Ballmer or Jack Ma -- but can the two consummate deal makers settle on shares?

Yahoo, the aging dowager of the Web portal genre and 40 percent owner of China's trading behemoth Alibaba Group, is up for sale. Again.

Yesterday the Wall Street Journal, citing anonymous sources, said that Microsoft is pursuing Yahoo. Again. "Microsoft would put up several billion dollars of funding, with additional financing being arranged by banks, the people said. Silver Lake and the CPP Investment Board would kick in the rest of the amount, which would be less than what Microsoft contributes."

There's a different way to look at the story, though. Just for a minute, put Alibaba in the driver's seat. How about this: "Alibaba Group is negotiating to buy back Yahoo's 40 percent share at bargain basement prices, with Microsoft providing a big chunk of the cash."

That's how it looks to me, anyway. Jack Ma, founder and CEO of Alibaba Group, is about to pull off the tech deal of the decade. And Steve Ballmer's going to help him.

Here's how the numbers shake out.

As of last night, Yahoo had a market capitalization of $20.1 billion. Alibaba Group has an estimated value of $32 billion. (Last month Silver Lake Partners, Jack Ma, DST Capital, Yunfeng Capital, and Singapore government-owned Temasek Holdings made a tender offer for 5 percent of Alibaba's shares for $1.6 billion, putting a market valuation on the Group at $32 billion.) Yahoo's 40 percent of that $32 billion should be worth about $13 billion.

Let's say the Journal's report is accurate and, in round terms, Microsoft's willing to kick in $3 or $4 billion, and "other banks" (want to bet DST Capital, Yunfeng Capital, and/or Temasek are in that category?) come up with $2 or $3 billion. Silver Lake and CPP contribute $2 or $3 billion, and all of a sudden you're looking at a possible $20 billion for the takeover kitty.

There's very little reason to believe a turf war is in the works. Alibaba Group wants its 40 percent back -- Ma has been very vocal on that point, for many years -- but it would have little to gain from Yahoo's other holdings. Microsoft's undoubtedly looking at folding the Yahoo Search portfolio into its gaping Bing maw. They're also eyeing the 700 million unique monthly visitors to Yahoo's News, Sports, and Finance sites. The rest of it's chaff. At $3 to $4 billion -- compared to the $44.6 billion Microsoft offered for Yahoo in 2008 -- Microsoft would be paying pennies on the dollar.

Ma takes some of his shares back, and the rest get distributed to existing shareholders or a small handful of new, as-yet-unnamed banks. Ballmer gets to brag about buying the important parts of Yahoo for one-tenth of what he would've paid three years ago. The only real questions are how much do each of the participants pay and how to stiff the taxman. Everything else seems academic when you look at it with Alibaba in the driver's seat.

AliMicrohoobaba: a match made in dismantling heaven.

This story, "A Microsoft-Yahoo-Alibaba hookup just makes sense," was originally published at InfoWorld.com. Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest developments in business technology news, follow InfoWorld.com on Twitter.

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