Last updated: March 2, 2011 7:02 pm

Yahoo looks to cede stake in Japan unit

Yahoo is in talks to divest its 35 per cent stake in Yahoo Japan, people familiar with the discussions have said, causing shares in the US company to jump more than 4 per cent on Wednesday.

Yahoo shares rose as high as $16.85, gaining back some of the ground lost two weeks ago when the internet company reported a 4 per cent decline in quarterly sales.

The stock boost reflected investor hopes that the company would find a way to unwind its holdings in Yahoo Japan, which has a leading presence in that country, despite majority owner, Japanese mobile operator Softbank’s public attempt to downplay the possibility.

After reports of the early-stage negotiations late on Tuesday, Softbank issued a statement saying that it “does not intend to acquire shares” in Yahoo Japan. Softbank is run by Masayoshi Son, the Japanese telecoms entrepreneur.

A swap of assets, in which Yahoo would trade its Yahoo Japan investment to Softbank and give the mobile group a stake in US-based Yahoo, had been described as one of the leading possibilities for a deal.

But Softbank’s denial leaves room for other arrangements, such as another buyer stepping in. Yahoo declined to comment.

People close to the situation had earlier cautioned that no deal was imminent and that the talks could go nowhere. One person close to the company said the hoped-for transaction would not involve Yahoo’s investment in Alibaba, the Chinese internet holding company that has sparred in public with Carol Bartz, Yahoo’s chief executive. Softbank is also one of Alibaba’s investors.

“They are not dependent on each other,” the person said, disputing reports that depicted a Yahoo Japan deal as a likely precursor to a Yahoo exit from Alibaba.

The talks come with Ms Bartz under pressure to return cash or other assets to shareholders. Yahoo’s growth has ebbed as internet audiences and advertisers turn to Facebook and other websites.

Yahoo executives have discussed the possibilities surrounding the Yahoo Japan stake more openly in recent weeks, saying that an exit could be attractive if it were tax-free instead of a straight sale.

“We’re in good discussions [with Softbank],” Tim Morse, Yahoo’s chief financial officer told a Goldman Sachs investor conference on February 16. “We really don’t have a good way to offset taxes at all for a sale, so we’re looking at tax-efficient options and, as I said, working with our partners to do so, so that it works for everybody, all the stakeholders concerned.”

In contrast to Yahoo in the US, Yahoo Japan has maintained its dominant position in internet search, handling 50 per cent of queries in contrast to a roughly 30 per cent share for rival Google.

The Japanese affiliate has split with its US parent in other areas. Last year it chose Google to power its web searches in a snub to Microsoft’s Bing search engine technology. Yahoo had committed to using Bing elsewhere in the world for 10 years.

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