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Softbank Holds Big Cards in Microsoft-Yahoo Bid

Japanese Internet firm Softbank finds itself under pressure from both sides in Microsoft's bid for Yahoo. Although it may hold out for more leverage, many expect it is unlikely to derail the bid.

CNBC.com

Softbank, which has capital ties with both bidder Microsoft and target Yahoo, theoretically could block a transfer of shares in Yahoo's Asian earnings driver Yahoo Japan, owned 41 percent by Softbank and 33 percent by Yahoo.

That could throw a wrench into the top software maker's unsolicited $31-per-share bid for Yahoo, analysts say.

"Whoever controls Asia, controls the world," Softbank's President Masayoshi Son told reporters last week. "Yahoo's Asia business are strong attractions for Microsoft."

Japan is one of the few places in the world where Yahoo outpaces giant Google in Internet traffic.

Under an agreement with Yahoo , Softbank can veto any sale or purchase by Yahoo of Yahoo Japan shares, according to Yahoo Japan's financial documents. That could affect a transfer of Yahoo Japan shares to Microsoft.

A similar agreement could also exist in China's top e-commerce site Alibaba.com's parent, in which Yahoo has a 39 percent stake to Softbank's 33 percent. Yahoo also holds a 1.2 percent stake in Alibaba.com.

But Softbank, which is seeking to strenghten its media content business, is unlikely to sabotage Microsoft's bid, said Macquarie analyst Nathan Ramler.

Softbank, which bought Vodafone's Japan unit in 2006, is betting that more people will access the Internet using their mobile phones rather than on their PCs as connection speeds rise.

To transform Softbank's mobile phones into what Son calls "Internet machines," firms have to have content, which Microsoft would be able to provide, Ramler said.

"Overall, Microsoft's bid for Yahoo is a positive for Softbank."

The best scenario would be a sweeter bid from Microsoft that Yahoo would find acceptable, a Softbank source said.

Yahoo investors are pressuring Microsoft to raise its $42 billion bid for the Web company, while Yahoo has sent a letter to shareholders saying that Microsoft's offer undervalues Yahoo's brand, online advertising business, networks and investments in Japan and China.

Softbank, which also owns 3.9 percent of Yahoo, has not decided about whether or not to sell that stake to Microsoft, Son told reporters last week.

"We are looking out for what would be best for Yahoo Japan and all of Yahoo. Talks have just begun, and we will not hurry about deciding."

Old Friends

Son, Softbank's founder who made billions investing in Internet start-ups including Yahoo in the 1980s, also has ties with Microsoft Chairman Bill Gates, dating back from Softbank's distribution of Microsoft software in Japan in the late 1980s.

The two have overseen a few joint ventures in Japan, including online used car business Carview, in which Softbank has a 63.7 percent stake and Microsoft has a 33.9 percent stake.

Gates and Son, who have been photographed playing golf together, share a common threat in Web search leader Google, Son has said.

Softbank, which is also Japan's smallest mobile phone operator, competes against top carrier NTT DoCoMo and No. 2 KDDI, which have both tied up with Google on mobile content.

Shares of Softbank have jumped 15 percent since Microsoft's Yahoo bid announced on Feb. 1, while shares of Yahoo Japan have gained 17 percent against the benchmark Nikkei's 1 percent rise.