By Nadia Damouni
Yahoo advisers Goldman Sachs and Allen & Co informed interested parties this week of a "no cross talk" provision, part of a non-disclosure agreement that must be signed to gain access to Yahoo's sensitive financial data, the sources said.
The provision has irked several potential buyers, including private equity firms that had planned to jointly bid for Yahoo.
They have refused to sign the nondisclosure agreement, and one source went so far as to call the provision a deal-breaker.
With a market value of about $20 billion, Yahoo is likely too big for any one party to swallow, with the exception of possibly Microsoft Corp.
But even Microsoft is considering a team bid, the Wall Street Journal said. It reported in its Deal Journal that Microsoft was working with Silver Lake Partners and the Canada Pension Plan Investment board on a proposal.
"Under the proposal being discussed, Microsoft would put up several billion dollars of funding, with additional financing being arranged by banks," the newspaper said, quoting unnamed sources.
Silver Lake and the Canadian fund would kick in the rest, though this would be less than Microsoft's contribution, the report said.
Bill Cox, a Microsoft spokesman visiting Hong Kong, declined to comment on the report.
Reuters has previously reported Microsoft and Silver Lake Partners, a buy-out firm, were among a host of interested bidders.
Jack Ma, the founder and CEO of Chinese e-commerce giant Alibaba Group, also reiterated his interest in buying Yahoo on Thursday.
"If the board is willing to sell, I'm interested. They've just got to let us know," Ma said at the AllThingsD event in Hong Kong.
If Yahoo insists on the "no cross talk" provision, it could heighten pressure on Yahoo's co-founder and former CEO Jerry Yang, who has been criticized for not acting in the best interest of shareholders.
The prevailing perception is that Yang derailed the Microsoft talks in 2008.
Yang said the company has not ruled out any possibilities.
"There are plenty of options for it to work and there are plenty of options for shareholders to realize that," Yang told the AllThingsD event when asked about the possibility of selling Yahoo.
Yang and Tim Morse, who was appointed interim chief executive after Carol Bartz was fired in September, have been driving the strategic review process, sources said.
Yang is interested in a deal with private equity firms to take Yahoo private in part because he sees that as the best option for preserving his connection to the company, Reuters has reported.
FOR COMPETING BIDS
The "no cross talk" rule is aimed partly at keeping that competitive tension in the bidding process.
"The board is taking action that is not conducive to the process," said the source, who spoke on condition of anonymity.
Implementing a "no cross talk" policy gives Yahoo more control over its strategic review. The company is not opposed to a joint bid, but it wants to encourage competition and avoid all the bidders forming one giant consortium, according to another person familiar with the situation.
"If they can control it, they can pair people up in a way so that you have a couple of consortiums," said the source.
"Whereas if they let everyone talk to everyone, it could very well be -- given the size of the check -- that you end up having only one buyer to bid on and then you have no tension in the auction."
A Yahoo spokesman declined to comment.
Over the last few weeks, private equity firms including Bain Capital, Silver Lake, Providence Equity Partners and Hellman & Friedman LLC have stepped up efforts to partner among themselves or with potential strategic buyers, such as Chinese e-commerce giant Alibaba or Microsoft.
AOL Inc Chief Executive Tim Armstrong is also actively trying to sell investors on a deal with Yahoo, though that is viewed to be a very long shot.
Private equity firm Blackstone Group has also expressed interest in the Internet giant, said one of the sources. A Blackstone spokesman was unavailable for comment.
The Wall Street Journal also reported that some private equity firms were valuing Yahoo between $16 and $18 per share. By comparison, Microsoft offered as much as $33 per share, or $47.5 billion, for Yahoo three years ago.
Yahoo shares rose 3.04 percent to close at $15.94 on the Nasdaq on Wednesday.
Given the poor lending environment and lukewarm interest from strategic buyers, a club deal involving at least two or more private equity firms is seen as necessary to getting a deal done, sources said.
But it would be hard for interested parties to put together an offer without access to detailed information on such things as the contractual agreements between Yahoo and its investment partners Alibaba and Softbank, or details of the search pact with Microsoft.
"The good news is there is a decent amount of information out there on Yahoo, but it is not at the level to do real due diligence," said the second source.
"You need to get under the covers there to peel back and see if the metrics are working in different business lines."
Financial information on Yahoo is expected to be circulated to interested parties this week.
(Additional reporting by Lee Chyen Yee in HONG KONG; Writing by Peter Lauria; Editing by Tiffany Wu, Bernard Orr, Mark Bendeich and Vinu Pilakkott)