Yahoo shares jump on buyout rumors

Updated at 4:48 p.m. ET

 

The Yahoo (YHOO) acquisition chatter will not go away, and today the rumors pumped the stock price up as much as 7.1% early in the day.

We are no clearer at this point about who might buy Yahoo or when, but the list of potential suitors gets longer by the day. That may explain why the shares peaked at $17.60 and closed the day up 3.2% to $16.97.

Now there's talk of private equity coming in and taking the company private in hopes of turning it around. The New York Post reports that private-equity firm KKR is interested in doing a deal -- or at least helping finance one.

Sources tell the Post that KKR co-founder George Roberts is buddies with Jerry Yang, one of Yahoo's founders and its former chief executive. Yahoo, if you'll recall, was the target of a $31-a-share takeover offer from Microsoft (MSFT) in 2008 but managed to wriggle free of Mister Softee. (MSN Money is published by Microsoft.)

Not the best move. Yahoo's fortunes haven't improved since then, and the company recently hired Goldman Sachs (GS) to receive takeover offers. That $31 a share is looking pretty good now, isn't it, Yahoo?

"The Valley is convinced Yahoo will be sold," one Silicon Valley insider tells the Post. "The blood is in the water. Yahoo is in play."

 

Post continues after video:

And then there's AOL, which has hired advisers to discuss strategy. One option could be a deal with Yahoo, sources tell The Wall Street Journal.

But AOL (AOL) hasn't presented Yahoo with a formal proposal, the Journal reports. The merger would not be an easy one, particularly because much of Yahoo's value is stuck in Asian investments in Yahoo Japan and China's Alibaba Group.

One scenario mentioned is that AOL buys Yahoo, spins off the Asian operations and then combines the online assets of the two companies, the Journal reports.

Finally, the rumors are swirling around Alibaba, the top e-commerce company in China. Yahoo owns 40% of the company, and Reuters reports that Alibaba wants to buy out that stake.

Alibaba's founder is trying to drum up financial support from private equity in order to buy Yahoo out, but the price tag could run as high as $4 billion, Reuters reported. Yahoo bought its stake for $1 billion five years ago.

Yet in all of this is a central question that I can't find any good answers for: What, exactly, justifies Yahoo's $22 billion market cap? The company is a mess and has been trampled by Google (GOOG) and Facebook.
Yahoo has a massive user base, but it lacks any real momentum or innovation. The company has been in idle since the failed Microsoft offer, while rivals have leaped ahead.

"What has Yahoo brought to market the last two years?" Forbes' Adam Hartung asks. "In the search market, online content management, browser technology and Internet ad placement, the game has fully gone to competitor Google (GOOG)."

The problem for Yahoo investors is that the company is pretty much at the same stage it circles to repeatedly: Buyers may or may not be interested. The company wants to sell, but only at a price that's probably too high. The M&A and unwinding scenarios are monstrously complicated.

You need the patience of a kindergarten teacher to deal with this. How long will investors wait this out?