Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

The sale process for Yahoo's core business is finally steaming into the first round per CNBC reports on Monday, and there are some familiar faces circling.

Microsoft, for one, is said to be willing to "lend significant financing" to buyout firms interested in bidding for Yahoo, according to Re/code. The outreach comes five years after the tech giant teamed up with Silver Lake, Andreessen Horowitz and Canada Pension Plan Investment Board to try to buy a minority stake in Yahoo, and eight years after Microsoft made an unsolicited bid for the company.

Bigger and Better
Microsoft shares have, for the most part, outperformed Yahoo's on a normalized basis since the tech giant made an unsolicited offer in 2008.
Source: Bloomberg

It shouldn't be a surprise to see Microsoft in the mix again when it comes to Yahoo. The pair are still part way through a 10-year search agreement that essentially turned over Yahoo’s search service to Microsoft's Bing, while Yahoo ran search-related ad sales using Microsoft’s technology. Though that agreement was tweaked last year, it remains of financial importance to Yahoo, which disclosed that the fees generated from that agreement represented 35 percent of its revenue for the past two years. It's also arguably worked out OK for Microsoft:  

"Bing exceeded 20% U.S. market share as we focused our advertising business on search" - Microsoft (2015 Annual Report)

Back in 2011, the Microsoft consortium was competing against other private equity firms including TPG. In the end, no deal happened with any party, likely in part because of strong opposition from Yahoo's then-activist, Dan Loeb's Third Point. (Loeb said any transaction would be a "sweetheart" deal that would effectively transfer control of the company without the payment of a premium and entrench then-CEO and co-founder Jerry Yang, who the firm was angling to oust.) 

Third Point's involvement in Yahoo eventually influenced the hiring of Marissa Mayer as chief executive as well as the sale of part of  Yahoo's Alibaba stake back to the company. Those moves ended up reaping roughly $1 billion in profit for Loeb's fund by the time it dumped its stake. 

Yahoo's current activist in residence, Starboard Value, might not be quite as fortunate even if a Microsoft-backed private equity team or other interested bidders like Verizon line up to strike a deal. 

Starboard first disclosed its stake in November 2014 and now has 1.7 percent of the company in its grips. Even if the core business is sold for anything close to analyst estimates (anywhere from $3.5 billion to $8 billion) and proceeds are distributed entirely to shareholders, the fund will be hard-pressed to lock in gains of more than $150 million. 

Activists, Again
Starboard will struggle to match the gains made by Third Point, an earlier Yahoo activist
Source: Bloomberg

It's also notable that Starboard is pushing to unseat a CEO installed by a fellow activist, which is fairly uncommon.

Given the revolving door (and growing presence) of such shareholders, many of whom have pushed for new management across corporate America, it's unlikely to be the last time that one firm locks horns with a target intending to undo the efforts of a rival.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net