Yahoo Inc (NASDAQ:YHOO) is considering a plan to unload most of its prized Asian assets in a complex deal valued at roughly $17 billion, sources familiar with the matter said on Wednesday, winning nods of approval from Wall Street and driving its shares higher.
The offer - the latest among proposals put forth in recent months to resuscitate the once high-flying Internet company - is expected to be considered by Yahoo's board on Thursday, sources said.
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The board was uninterested in entertaining offers for the entire company at this point, said one of the sources, who spoke on condition of anonymity.
Yahoo's increasing difficulty in competing with Internet heavyweights such as Google Inc and Facebook have forced it to explore proposals to revamp its business.
The former Internet powerhouse, which fired its Chief Executive Carol Bartz in September, has a market value of around $18.5 billion.
The Asian split-off plan to be considered by the board follows previous proposals by private equity firms to buy a minority stake in Yahoo. Those proposals were fiercely opposed by some of Yahoo's largest shareholders, including activist hedge fund manager Dan Loeb, of Third Point LLC.
"It's clear that Dan Loeb at Third Point is exerting some influence," said Adam Seessel, director of research at Martin Capital Management, which added to its position in Yahoo a few weeks ago. He "is doing all Yahoo shareholders a favor by looking over the board and making sure they do the right thing."
Yahoo shares, which languished in the red along with much of the technology sector on Wednesday, reversed course and ended the session almost 6% higher at $15.99. It inched further upward in after-hours trading to $16.09.
At a $17 billion valuation, which includes the value of the Alibaba stake that Yahoo would retain under the latest proposal, a deal would mean the Asian assets are worth $14 per Yahoo share, one of the sources said.
The deal would essentially mean that Yahoo's core U.S.-based Internet business is valued at only $2 a share, according to Lawrence Haverty, a fund manager with GAMCO investors, which owns Yahoo shares.
Given that Yahoo has roughly $2 a share in cash on its balance sheet, Haverty said the deal left plenty of room for upside in the core business.
"This is the right thing to do. This is how you maximize shareholder value," he said, noting that he believed the tax-free structure of the plan seemed feasible.
Alibaba chief Jack Ma has said several times he would like to buy back Yahoo's stake in his company, one of Asia's largest Internet corporations. Investors have long said Yahoo's investment in Alibaba, along with its 35% slice of Yahoo Japan, are far and away the U.S. company's most prized assets.
In the deal under contemplation, Yahoo would effectively transfer most of its 40 percent slice of Alibaba back to the Chinese company and all of its stake in Yahoo Japan to Softbank Corp, sources said.
Alibaba and Yahoo Japan would each create separate legal entities where they would put cash and operating assets, and then trade those with Yahoo, making the deal tax-free, the sources said.
At the end of the contemplated transaction Yahoo would retain a 15% stake in Alibaba, the sources said.
The final deal size will depend on how the assets are valued, another source said.
"It's definitely a step in the right direction. It shows that the board is thinking about shareholders as opposed to their own interests," Martin Capital's Seessel said.
Yahoo declined to comment. The possible deals were first reported in The New York Times.
Last week, sources told Reuters a consortium consisting of private equity group Silver Lake, Microsoft Corp (NASDAQ:MSFT) and venture capital firm Andreessen Horowitz were reworking a bid for a minority stake in Yahoo.