Warren Buffett teams up with Dan Gilbert to bid for Yahoo

16 May 2016

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Warren Buffett's investment arm Berkshire Hathaway has teamed up with Quicken Loans' founder Dan Gilbert to bid for Yahoo, The New York Times yesterday reported, citing  people briefed on the matter.

The consortium has tabled a leading bid and is among the several suitors who have moved into the second round of bidding, the report said, adding, two former Yahoo executives, Dan Rosensweig, and Tim Cadogan are advising the consortium.

Berkshire Hathaway is providing the financing for the deal, as it had done when it had teamed up with investment firm 3G Capital in acquiring H J Heinz and Kraft, and is leaving the negotiations to Gilbert, the report added.

In the second round of bidding, the Berkshire Hathaway-Dan Gilbert consortium is competing with Verizon Communications, private equity firms such as TPG Capital and a group that comprises Bain Capital and Vista Equity Partners, and several other strategic bidders.

Last month, Yahoo CEO Marissa Mayer said the company was considering offers for the sale of its web operations after activist investor Starboard Value's Jeffrey Smith threatened to start a proxy fight (See: Activist investor revolts against Marissa Mayer and Yahoo board). Yahoo has been struggling for years to revive its growth after not being able to keep pace with the rise of mobile and social networking. Multiple turnaround plans had been tried but they had failed to work.

Jeffrey Smith had earlier written a letter criticising the company's board and called for Marissa Mayer to step down.

Yahoo executives had proposed a plan to spin off its main internet business, but the idea was dropped in favour of a sale.

A sale of Yahoo's core web business, would leave it as a holding company for its various investments. These include primarily its stakes in Jack Ma's Alibaba  and Yahoo Japan Corp.

After accounting for a $27.7-billion stake in Alibaba Group Holding Ltd, $7.96-billion stake in Yahoo Japan Corp and $5.88 billion in cash and equivalents, Yahoo's market value of $28.9 billion shows that investors consider the main business to be worth nothing, according to Bloomberg Intelligence.

The company scrapped a long-held plan to spin off its stake in Alibaba Group because of fears of landing up with a hefty tax bill.

Buffett, who has investments in well-known consumer brands including Coca-Cola, Wells Fargo & Co. and American Express, is not new to financing takeovers, which not only earns him interest money but also a sizable stake in the target company.

In 2014, Berkshire funded $3 billion to Burger King Worldwide Inc to buy out Canadian doughnut chain Tim Hortons Inc. The company also funded Mars Inc.'s to buy its subsidiary William Wrigley Jr. Co.

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