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(Reuters) - Talks between Yahoo Inc and China's Alibaba Group over the U.S. Internet giant's Asian assets have hit an impasse, throwing their plans for a $17 billion tax-free asset swap into question, according to sources briefed on the situation.
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The snag in negotiations came on the same day that activist investor Daniel Loeb, of hedge fund ThirdPoint, sought to install his own slate of directors on Yahoo's board, further highlighting the turmoil engulfing the one-time Web pioneer.
Loeb, who has opposed Yahoo's previous efforts to strike a minority investment deal with private equity, disclosed plans to nominate former NBC Universal CEO Jeff Zucker, along with himself and two others, for Yahoo's board in a regulatory filing with the Securities and Exchange Commission on Tuesday.
A collapse of the proposed Asian asset deal - referred to as a cash-rich split-off - would mark the latest setback for an erstwhile Internet leader struggling to turn its business around and appease unhappy shareholders.
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Yahoo, whose revenue slid by more than a fifth last year, brought in former PayPal President Scott Thompson as chief executive in January, five months after Carol Bartz was fired.
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Two people briefed on the situation described the deal as effectively dead in the water - noting the unreasonable terms sought by Yahoo during talks in Hong Kong and a disconnect between Yahoo's negotiating team and its strategic stakeholders.
Alibaba Group, whose Chinese e-commerce unit Alibaba.com is listed in Hong Kong, and Japan's Softbank Corp, which owns around 30 percent of Alibaba, planned to seek clarity on the matter from Yahoo's Thompson, one of those sources said.
"They (Yahoo) left town knowing how everybody felt ... Alibaba and Softbank are going to be reaching out to the new CEO to get clarity on what the heck happened," said the source.
Yahoo appeared to see things differently. The company had not been informed that the tax-free deal was officially off the table, and it remained committed to continuing negotiations, according to one of the sources familiar with the matter.
Yahoo representatives including Chief Financial Officer Tim Morse returned to the United States late on Monday after a week of negotiations in Hong Kong, and another call was set for this week, that source said.
Yahoo and Alibaba officials declined to comment.
The sources said Yahoo and its Asian partners could still strike another, simpler and taxable, deal, but there was no agreement yet on the price at which Yahoo should sell.
One of the sources close to the matter said Yahoo was not going to revisit the price of the deal, even though Alibaba's value may have risen while the talks were going on, and any increase could influence whether the deal on the table made sense for Yahoo.
None of the sources wanted to be named in this article due to the sensitive nature of the private talks.
