Yahoo’s board will consider a deal to sell its holdings in Alibaba Group and its Japanese affiliate back to their majority owners in a complicated tax-free deal valued at about $17 billion, according to people briefed on the matter.
Yahoo's U.S. shares rose on the report.
If the board, which is expected to meet Thursday to discuss the broad outlines of the offer, ultimately approves pursuing a deal, it may reject separate investment proposals by Silver Lake and TPG Capital, some of these people said.
The deal is valued at close to $14 a Yahoo share, these people said.
Under the current proposed terms, Alibaba and Softbank, Yahoo Japan’s majority owner, would create new legal entities that would consist of both cash and certain operating assets.
Yahoo would then swap out most of its stake in Alibaba and all of its stake in Yahoo Japan for these entities, effectively selling those holdings.
Yahoo is expected to keep a 15 percent stake in Alibaba, allowing it to hold onto a piece of the fast-growing Chinese Internet company, one of these people said.
The proposal values Yahoo’s entire Alibaba stake at about $12 billion and its stake in Yahoo Japan at about $5 billion, this person added.
It could be executed either as a standalone deal or alongside a minority investment in Yahoo by Silver Lake or TPG.
Although Yahoo’s board may still chose to reject the offer, or delay the approval, momentum seems to be building for a deal with its Asian partners. Should the board reject the offer, Alibaba and Softbank are prepared to bid for all of Yahoo in conjunction with private equity partners, the person briefed on the matter said.
The battle for Yahoo’s future has taken many twists, since the company abruptly ousted its former chief executive, Carol Bartz, in September.
Over the last several weeks, the board has entertained multiple offers from a broad swath of suitors. Late last month, the company seemed to be leaning toward the saleof a minority stake to private equity suitors.
Separate investor groups led by Silver Lake and TPG Capital made bids to acquire stakes of roughly 20 percent, with Silver Lake offering about $16.60 a share and TPG about $1 a share more, two people briefed on the matter previously said.
Both proposals involved a share buyback and an alignment with stakes owned by co-founders Jerry Yang and David Filo, that would effectively give the winning group majority control.
Despite initial support by the board, those proposals have been harshly criticized by shareholders, who are concerned that such a deal will dilute their holdings and concentrate too much power with a new investor group.
Daniel S. Loeb, the head of the hedge fund Third Point, and Capital Research and Management, Yahoo’s largest shareholder, were particularly resistant to the proposals, according to people close to Yahoo.
The resistance weighed on some members of the board, these people said, who were worried about a backlash from shareholders and negative press.
Over the past three weeks, Yahoo restarted talks with Alibaba and Softbank, which had submitted an initial proposal in October. During the negotiations, the two sides agreed to raise the valuation of the Asian assets and to let Yahoo hold onto a small piece of Alibaba, one of these people said.
John Spelich, an Alibaba spokesman, declined to comment.
On Sunday, Alibaba’s team, including its chief financial officer, Joesph Tsai, arrived in New York, to continue negotiations, one person said.
Though a final deal may not be signed for several weeks, Yahoo’s board will consider whether the proposed term sheet is acceptable on Thursday. If the board consents, negotiations will proceed.
Yahoo’s board has not yet dismissed the proposals from Silver Lake and TPG, according to some of the people briefed on the matter, but it may pursue an independent path if it accepts Alibaba and Softbank’s offer.
Some on Yahoo’s board believe the company will be better positioned– once it gets a cash infusion — to appoints a new chief executive and reconfigure ts board.
Still, two of these people warned that no outcome is certain because the board has been splintered on several issues throughout the process, including Yahoo’s identity and how it should operate going forward.
Yahoo did not immediately respond to a request for comment.