Yahoo's Bartz Bluffs with Alibaba
It's hard to decide what to think of Carol Bartz, the turnaround chief at Yahoo (YHOO). On one hand, her blunt demeanor provides endless entertainment in a sea of business execs too polished by media training and talking points. On the other hand, she seems just a full of it as all the other on-message suits.
The current case in point is the way the battle between Bartz and Yahoo!'s Chinese Internet partner Alibaba has blown up into a milestone story. For most of the financial media -- that's Bloomberg and the Reuters/New York Times's Breaking Views -- the signpost is simply the breakdown in secret talks between Bartz and Alibaba's owner, Jack Ma over the sale of Yahoo!'s 40% stake.
We're not getting the details of what was on offer, but from the public statements it would seem pretty clear that the two companies are talking past each other. Before we get into a little of the history, let's just lay out the point of contention, because there's justice on both sides.
The Chinese company, Alibaba, has a growing business that no longer gets much benefit from its alliance with Yahoo!. The Americans have a struggling company that's undervalued by the stock market to such an extent that its minority stakes in two Asian companies (Alibaba and Yahoo! Japan) are roughly equal to company's entire market capitalization -- meaning that the rest of Yahoo effectively carries a value of zero.
The Chinese figure the Americans would be eager to take cash off the table. A lot of bystanders and shareholders agree. But Bartz smells a rat and won't sell. Why? Because at some point further down the line the 40% stake Yahoo! owns will probably be worth a fair bit more than the $11 billion conventional-wisdom number that's floating around.
Instead of selling, Bartz wants to get her nose in under the tent and take a board seat. The fact that the current Yahoo! seat on Alibaba's board is occupied by the man she displaced as CEO of Yahoo!, Jerry Yang, can't be a mere coincidence. Indeed, the history of Yahoo!'s investment in Alibaba begins with Yang, who made a very smart and opportunistic deal in 2005 in which he invested both cash and Yahoo! assets in Ma's company. Yang put $1 billion into Alibaba and gave the company Yahoo! China to run; in return, he got 40%. So far it has been a visionary deal for Yahoo!
It would be too easy to ascribe Bartz's obstinacy to petty corporate competition. Though there's always the chance that she doesn't want to sell just to keep the deal from ending with Yang and all going to his credit. Bartz herself seems to have given us another motive. That's because the Wall Street Journal has recast the Alibaba debate into something much bigger -- not a question of selling at the right time, but one of whether Bartz has the time to sell.
The WSJ's story on the decision not to sell the Alibaba stake begins with a prophylactic defense of her leadership by Bartz herself. Comparing her situation to Steve Jobs when he returned to Apple in the late 1990s, Bartz believes she needs more time than the 20 months she's had to turn Yahoo! into something new, not just the same old stagnant Yahoo! with a better cost structure.
Investors are frustrated with how cheap Yahoo!'s stock has become (remember, it's trading at the value of the Asian stakes.) In all fairness to Bartz, she wasn't the one who committed the sin of spurning Microsoft's now spectacular looking offer for the company. Nonetheless, all Bartz has accomplished at the company has been the cost cutting. Unlike Jobs at Apple a decade ago, she hasn't launched new products or shown where Yahoo!'s future lies now that it's out of the search business.
Shareholders would surely love to get their hands on the cash from a sale of the Alibaba stake. If she sold it, that's where the money would have to go because Bartz cannot come up with a reasonable use for any of it. She told the Journal that she needed more time to "upgrade technology" and "see what drives engagement." Let's be honest, what would she spend $11 billion on to do that? Is there a big bolt-on acquisition that makes sense for an online display advertising vehicle like Yahoo!?
Anyone... anyone...?
Without anywhere to invest the money, a sale would only shrink Bartz's enterprise further and diminish her accomplishment. The shareholders would benefit but Bartz would not. If Yahoo!'s business was dynamic and growing, or just plain growing at all, it would be much easier to make a graceful exit from Asia. She could even declare a special dividend to reward investors who had kept the faith.
But Yahoo! isn't growing. And a sale would only draw attention to that fact. So Bartz has to bluff her way through and hope that Alibaba goes public and the $11 billion turns into $15 or $20 billion where she can sell and claim to have added a few billion in value to the company herself. Otherwise, she's just caretaker CEO breaking up the company.
Even if she does time the market in Alibaba shares perfectly, she's still no Steve Jobs. Bluster and a blue streak won't change the basic facts that Bartz is sitting on a mature business. Meanwhile, there's plenty more runway for Alibaba and Ma if they can just shake her off their coattails.
Image of Carol Bartz from Yodel Anecdotal via Flickr.com