• Company said to prefer selling Yahoo Japan with Web operations
  • Yahoo in process of signing non-disclosure agreements

Yahoo! Inc.’s latest preferred option to salvage itself -- selling its Yahoo Japan Corp. stake together with its Web operations -- shows again that the company has never had a shortage of ideas. What it lacks is a vision.

The once-dominant Internet company has floated everything from spinning off its stake in Alibaba Group Holding Ltd. to a reverse spin and finding a buyer, amid increasing calls from shareholders for change. It’s also recently tapped a formidable group of advisers to help it figure out what to do.

Now, Yahoo is looking at bundling Yahoo Japan with its core business, according to people with knowledge of the matter, who asked not to be identified because the information is private. Yahoo has a 35.5 percent stake in Yahoo Japan, and SoftBank Group Corp. owns about 43 percent of Japan’s most profitable website, according to data compiled by Bloomberg.

“We will have conversations with Yahoo Japan, with SoftBank and Alibaba,” Kenneth Goldman, Yahoo’s chief financial officer, said Thursday at the Morgan Stanley Technology, Media & Telecom Conference. He said he had no further comment on the sale process.

Activist Defense

Yahoo is relying on three banks -- Goldman Sachs Group Inc., JPMorgan Chase & Co. and PJT Partners Inc. -- to explore a sale and a fourth bank, Evercore Partners Inc., to help with activist defense against Starboard Value LP, according to people familiar with the matter.

Law firm Cravath Swaine & Moore LLP, also on board, interviewed and helped select the financial advisers. The group is in the process of getting non-disclosure materials signed by potential buyers and trying to figure out what Yahoo wants to sell, the people said.

PJT was hired over other boutique advisory firms who wanted a role in helping the company, including Centerview Partners and Qatalyst Partners, the people said. The plethora of firms around the company epitomizes a chief executive officer and board that aren’t sure of the path forward and already scrapped multiple ideas to create value for shareholders.

Alibaba Stake

First, Yahoo planned to spin off its roughly 15.5 percent stake in Chinese e-commerce company Alibaba and a small business unit, while keeping the rest of its Internet assets and its position in Yahoo Japan together.

After questions arose about whether the Alibaba divestiture would be tax-free, CEO Marissa Mayer changed course in December and said Yahoo was examining a reverse spin. In a conference call this month, Mayer said “Yahoo’s operating business and equity holdings in Yahoo Japan will be separated into a new operating entity.”

In the latest turn, Yahoo would prefer to sell its Yahoo Japan stake, valued around $8 billion, with its Web operations, the people familiar said. Mayer believes there are operational synergies between the two businesses, and Yahoo Japan still uses Yahoo technology, the people said.

It’s unclear if there’s a buyer for both, although Yahoo plans to pitch the idea to SoftBank, one of the people said. SoftBank already benefits from owning the stake and consolidates Yahoo Japan results in its earnings, so it may be more attractive to other companies that want exposure to Japan, which has more than 100 million Internet users, the person said.

Representatives of Yahoo, Evercore, SoftBank and Verizon declined to comment. Spokesmen for Centerview and Qatalyst didn’t immediately respond to requests for comment.

Verizon, Time

Yahoo could also spin off both the core Web business and Yahoo Japan, which is still under consideration, the people said. And Yahoo is exploring a sale of the U.S. core business itself. Suitors include large companies such as Verizon Communications Inc. or a smaller merger partner such as Time Inc. Verizon probably wouldn’t be interested in buying Yahoo Japan if it was included with Yahoo’s main operations, one of the people said.

Yahoo also has said it’s exploring selling non-core assets including patents valued at $1 billion to $3 billion. CFO Goldman reiterated those plans at the conference Thursday.

The possibilities don’t end there. CEO Mayer could continue to try to turn the company around, or partner with a private equity firm to take it private and work on a revival without the scrutiny and pressure of public shareholders. The management-buyout scenario is not likely, the people said.

Growing Frustration

Mayer and the board continue to consider a wide range of options amid growing frustration from investors, who have assigned little value to the company’s core Web operations. As of December, when Yahoo scrapped the Alibaba spinoff, its core-asset valuation was probably negative, according to Bloomberg Intelligence.

Starboard, the activist investor that first raised concerns in 2014, has taken initial steps toward a potential proxy fight, people familiar with the matter have said. Okapi Partners LLC -- a proxy solicitation adviser typically used by the activist -- has been calling Yahoo shareholders.

The moves followed a letter by Starboard CEO Jeff Smith in January that called for an overhaul of management. He said that his firm will “look to make significant changes to the board if you continue to make decisions that destroy shareholder value.”

Mayer is scheduled to meet with Starboard next week, according to a separate person familiar with the matter. Starboard owns less than 1 percent of Yahoo shares.

Starboard is one of the most prolific U.S. activist investors and has a track record of successfully making companies heed its wishes. In 2014, Starboard persuaded investors to replace Darden Restaurants Inc.’s entire 12-member board after the unpopular sale of its Red Lobster chain to Golden Gate Capital. Starboard also recently pressured office-supply rivals Staples Inc. and Office Depot Inc. into a merger.

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