The Reason Microsoft Is Willing To Loan Big Cash To Potential Yahoo Buyers

Organizations do learn. And with the financial emphasis having shifted away from actually owning assets to merely leveraging them, one has to admire the cold-blooded calculus of Microsoft's willingness to lend financiers the cash to manage the swamp that is Yahoo in order to protect the growing Bing user base it provides.

This assumes, of course, that said financial buyers will honor the Bing contract if they prevail. But Microsoft would surely have thought of that. Wouldn't they? JL

Peter Bright reports in ars technica:

Yahoo remains an important (Microsoft) partner. Bing's market share continues to grow each quarter, and Yahoo's use of Bing search is a key part of this success.Redmond is keen to protect this important deal. Offering a private equity firm a billion or two in cheap financing would enable the company to preserve this partnership, while being substantially cheaper than buying the company itself.
In 2008, Microsoft bid almost $45 billion in an attempt to buy Yahoo. That deal fell through, but with Yahoo putting itself on the chopping block and planning to divest its core Internet business, the software giant is once again expressing an interest. This time, the plan is not to buy the whole company but instead to offer financing to the private equity firms that are currently considering bids, according to Kara Swisher at Recode.
Yahoo's market cap is about $32.5 billion, but a hefty portion of this number is made up of investments in Alibaba and Yahoo Japan. Without these investments, the core Yahoo business is valued at between $6 billion and $8 billion. According to Swisher's sources, the Yahoo board wants $10 billion, an amount it seems unlikely to get.
Activist Yahoo shareholder Starboard Value has criticized the sale process, calling it "too slow" and "fraught with conflicts of interest," and it is trying to have the board replaced. Putative buyers have been critical of the board, with Swisher writing that those she has spoken to have called the process a farce. An unrealistically high valuation is sure to fuel this incredulity.
After Microsoft's failed bid to buy Yahoo, the two companies signed agreements that would see Microsoft providing both search technology and advertising to Yahoo. While the terms of this deal have changed, with Redmond losing its exclusive arrangement last year, Yahoo nonetheless remains an important partner. Bing's market share continues to grow each quarter, and Yahoo's use of Bing search results is a key part of this success.
Redmond is keen to protect this important deal. Offering a private equity firm a billion or two in cheap financing would enable the company to preserve this partnership, while being substantially cheaper than buying the company itself. In spite of its previous interest, sources within Microsoft tell Swisher that it has no interest in buying Yahoo this time around. Companies that are interested are believed to include AT&T, Verizon, and Comcast, along with a number of private equity firms.