Daniel Barry/European Pressphoto AgencyTPG Capital is exploring working with Jerry Yang, Yahoo’s co-founder, on making a minority investment in the company.
The private equity firm TPG Capital has signed a nondisclosure agreement with Yahoo, making it one of the first potential suitors to begin formal due diligence work on the company, which is weighing a sale, people briefed on the matter told DealBook on Thursday.
TPG’s decision comes even as many other private equity shops are balking at signing such an agreement, since its terms include a prohibition on talking with other potential suitors. Many of these possible bidders have argued that such a “no cross-talk” provision would limit their ability to cobble together a full takeover offer for Yahoo, given the company’s nearly $20 billion market value.
But TPG is exploring making a minority investment in Yahoo, working with the company’s co-founder, Jerry Yang, these people said. In one potential plan, TPG would buy up perhaps a 20 percent stake in Yahoo, while Mr. Yang and another co-founder, David Filo, would roll in their roughly 10 percent stake.
After a planned stock buyback, financed with additional debt, TPG could control a majority stake of Yahoo.
TPG is in the early stages of due diligence and may decide not to make an investment, these people said. A minority investment is only one of many possibilities that Yahoo’s board is weighing, alongside a sale of the whole company.
Mr. Yang, the former chief executive of Yahoo who famously rebuffed a $44.6 billion bid from Microsoft in 2008, is not exclusively speaking to TPG. The board member has spoken to several private equity firms, according to people with knowledge of the matter. Although the process has involved the company’s interim chief executive, Timothy R. Morse, it is uncertain if Mr. Yang and any possible deal will have the full support of the company’s board.
Mr. Yang and other directors have had conversations with potential partners at the behest of the Yahoo board’s transaction committee, according to a person close to the company.
It is also unclear how such a plan would be treated by Yahoo’s restive shareholders. While they could choose to sell some of their holdings through stock buyback, it would leave Yahoo relatively intact, with Mr. Yang still playing a major role at the company. Some of the turnaround plans being contemplated include a major overhaul of Yahoo and its management.
Meanwhile, Yahoo’s talks with the Alibaba Group have cooled.
Last month, Alibaba submitted an unsolicited formal offer for the company’s Asian assets, but Yahoo has not seriously reviewed the deal. The offer placed a lower valuation on Alibaba than did a recent offer by a consortium of investors to buy back shares from employees, one of the people briefed on the matter said.
Because Yahoo did not appear to take the offer seriously, Alibaba is now considering pursuing other strategic options, this person added. It’s possible that these could include participating in an investor consortium seeking to buy all of Yahoo.
Yet an Alibaba deal is still possible, according to two people close to Yahoo. In fact, the negotiations with the private equity firms could serve the additional purpose of giving Yahoo more leverage in future deal talks.
TPG, whose holdings range from First Data to the J. Crew Group, and Yahoo are already on familiar terms. Both are based in the San Francisco area, and Mr. Yang serves on Stanford’s board of trustees alongside James Coulter, one of TPG’s co-founders.
Spokesmen for TPG, Yahoo and Alibaba declined to comment.
Peter Lattman contributed reporting.
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