Can Jerry Yang find help in China?

In the office.
And on the beach

The web magazine for top managers - who's promoted, who came, who left? And what to do when you're not in the office.

Considering Yahoo's shrinking market share it is hard to believe that Yahoo will rise through organic growth. So, where will Mr. Yang find the money? In China?

After months of speculation about Microsoft's attempt to buy Yahoo Mr. Jerry Yang had very few nice days. After Mr. Steve Ballmer's threat that there will be a proxy fight, the billionaire Carl C. Icahn publicly announced that he started the proxy fight. Mr. Icahn compiled the list of 10 directors, bought a pile of Yahoo shares and said that he will seek antitrust clearance from the Federal Trade Commission. And when Mr. Icahn knocks on your door it is time to listen. So, what is the position of Mr. Yang?

Mr. Icahn has 59 million shares of Yahoo, T. Rowe Price has 18 million shares, and Capital Research and Management is the largest investor with 11.6 percent. It is safe to assume that a number of big investors is not satisfy with irrational move of Yahoo's board of directors. Thus, a proxy fight that Mr. Icahn started is much serious than Mr. Ballmer's threat. There are three possible reasons for rejecting Microsoft's offer: The board is really irrational, Mr. Yang is guided by greed, Mr. Yang knows something that his stakeholders don't. The first is hard to believe, the second almost that hard, so we're left with secret third option.

Considering Yahoo's shrinking market share it is hard to believe that Yahoo will rise through organic growth. The only answer is: Mr. Yang knows where's the money. It may come from Google and since Google has more secrets than Department of Defense it is impossible to say what are Google's intention. But, let us consider the other source of money. It could be China.

China

Yahoo has 39 per cent ownership in the well-know Alibaba, the largest e-commerce portal in China, and Mr. Yang is one of four members of Alibaba's board. Furthermore, Yahoo has good connections with Chinese government, the dissidents know that too well. It is also known that Yahoo entered Chinese market and Microsoft don't in such extent, so the possible acquisition of Yahoo would give Microsoft a good pole position on largest market in the world. But Chinese government will not allow that. That means that Alibaba has two options: To buy its own stocks or to sell them to another company which is more Chinese-friendly.

Japan's Softbank Corp., a major shareholder in Alibaba could be that investor, but there is another big player: China Investment Corporation (CIC), the company that manages billions of dollars from China's foreign exchange reserves. CIC has, and has means to get, enough money to protect Yahoo from hostile takeover. One political decision is enough to start the process. That decision is pure politics from several reasons. First, CIC officially don't want to enter any political games in other countries, but where's the money there's politics. Second, Chinese government don't need more troubles in Olympic year; Tibet and people on the street were enough. Third, all key executives and directors at CIC are from government or closely related to it, so economics in this case can't be separated from politics.

Alibaba reported good numbers recently, it has a deal with Infomedia India Limited, and the future looks bright despite some rocks on the road ahead. However, China promoted new B2C portal named Zhengjiaweb.com in a move that may look like a big danger for Alibaba. The reasons for creating a company that will be rival to Alibaba are not known, but it is clear that Alibaba must do something in the reasonably short term. Considering the interconnection between CIC, the government, Yahoo and Blackstone (which has some influence in Microsoft and CIC owns a smaller stake in it), the situation could be very interesting.

And if all that make any sense, there's one tough question: Will American stakeholders allow Yahoo to be sold to People's Republic of China? I'm reasonably sure that Mr. Yang thought about such sale.

May 15, 2008

Post to:

Enjoy more articles from this section

wanderer on 15.05.2008. 23:37

Unexpected analysis but... Since China is in the game, everything is possible. Interesting theory, although I don't think that shareholder will sell to reds

In the office.
And on the beach