What Will Happen Next at Yahoo!

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There is a lot of speculation about what is going to happen next with Yahoo! (YHOO).

No one truly knows.  There are several scenarios that could play out.

Henry Blodget had an interesting take on the minority stake/leveraged recap plan last week.  I think he did a good job in that piece.  However, I think he missed a key point.

I have said before that there is a scenario whereby a leveraged recap can work. Obviously, it will take multiple steps and take more time.  And some Yahoo! shareholders worry that � because it�s multi-step � there�s a risk that it doesn�t get followed through.

Henry referred to part of the �plan� as unlocking the value in Yahoo!�s Asian assets.

I think it�s this unlocking part that is what�s taking the most time with various parties discussing it and agreeing to the terms.  But Henry didn�t refer to the �cash-rich split� which is the format that will be used to unlock this value, which I first mentioned in September.

This format is important.  Yahoo!�s stakes in Alibaba Group and Yahoo! Japan is worth $20 billion today.  That�s more than Yahoo!�s market cap.  I heard Becky Quick on CNBC this morning discussing Yahoo!�s Alibaba Group stake and saying Wall Street analysts believe that stake is only worth $9 billion (instead of $13.5 billion, which is more accurate).  So, there�s obviously lots of confusion on this issue and, if Yahoo! can prove it can unlock close to $20 billion in value (it would be less after the bankers take their fees), that would be very constructive for the stock price.

So, how might a cash-rich split work?

Well, it might certainly start with a PE firm taking a stake in Yahoo! as has been discussed.  And I actually think Blackstone and Bain are more in the driver�s seat to do that rather than Silver Lake.  Why? Because Blackstone and Bain have a hell of a lot more capital to do this kind of deal.  (But, contrary to what some have said, I don�t think there�ll be any losing PE firm here. My guess is that Blackstone and Bain invite Silver Lake in � probably also with the rest of their Skype consortium.  Why wouldn�t they?  This is a big deal that needs lots of capital.)

This PE deal might be a precursor move to the cash-rich split.  And here�s where we get to the mechanics of the split.  Doing the split involves separating the Yahoo! stakes in Alibaba Group and Yahoo! Japan into a new entity (Splitco).  The �core� Yahoo! biz goes into NewCo.  Alibaba Group and Softbank get SplitCo in exchange for cash which goes back to Yahoo! in NewCo.