Yahoo: Not an “Old Maid” Yet

It looks as though interest in troubled web search company Yahoo was only taking a holiday break. Today, a group of top Silicon Valley execs and investment bankers are preparing a Yahoo takeover package that would (get this!…) be financed largely from debt supplied by (wait for it…) Microsoft!

According to this new deal, the investment group would make a takeover bid for Yahoo at a relatively low level of around 20% of its current price of around $13 per share, which values the search company at just over $20 billion. The bulk of the cash for the transaction would come from Microsoft as debt.

The commercial markets are pretty much closed today, which makes it necessary to find a more creative way to finance the deal. Microsoft would supply the majority of the cost from their $23 billion cash reserves in return for a fixed return on the debt that is tied to Yahoo’s “future cash flow”.

Yahoo’s search and search marketing business would then tentatively be sold to Microsoft under terms similar to what Microsoft proposed in June of last year.  The plan would be totally different from the wacky Microsoft rumors that were flying around last November.

Following the transaction, the new executive team would occupy the top positions at Yahoo. A key objective of this new conglomerate would be to try and win back much of the executive talent that jumped ship within the past 12 months.

This would leave Yahoo as an independent entity, albeit one closely tied to Microsoft both financially and through the search and search marketing products.

The deal, which is being characterized at this stage as a proposal to Microsoft, absolutely hinges on their involvement. It certainly brings everything the Redmond giant has asked for, namely a way to control Yahoo’s search properties without having to own the rest of the company.