Should You Play The Yahoo Bidding War? No

| About: Yahoo! Inc. (YHOO)

The bidding war for Yahoo (NASDAQ:YHOO) is now well underway.

I last wrote about this a month ago, when Alibaba's (OTC:ALBIY) Jack Ma publicly announced he had the cash to play. Yahoo owns a big chunk of Alibaba, bought when it was just a start-up, and now that he's bigger than Yahoo will ever be he'd like his stock back. Please.

Yahoo closed yesterday at $15.71 and that's just about what Ma's public bid was for. Now a group led by Silver Lake Partners is said to be preparing a $16.60 bid and there are rumors of another bid for $20/share. There's also a report that Thomas Lee Partners is ready to buy the U.S. part of the company and make a big success of it, as it did with Clear Channel.

Should you play?


First, any deal is going to take a long time to close. Silver Lake's bid is such a small premium to the current price you might be better off in a CD.

Second, Ma doesn't have to buy back all of his company to win. If he can get a hefty piece back at a good price, essentially making a U.S. private equity firm his partner instead of the mercurial Jerry Yang, he might be a very happy man.

Private equity groups don't play public company acquisitions the way public companies did. They can negotiate in back rooms. If, say, Bain Capital wants Yahoo and Silver Lake also wants Yahoo, the two companies can split the deal at a bargain price rather than bid against one another.

If you own Yahoo shares now may be a good time to get out, with the rumors dominating conversation. If you don't it may well be too late to get in, as after hours trading sent Yahoo to the Silver Lake level and a substantially higher bid is unlikely.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.