Some potential buyers of Yahoo Inc are balking at the Internet company's demands for confidentiality that would prevent them from discussing joint bids, according to several people close to the situation.
Yahoo advisers Goldman Sachs and Allen & Co informed interested parties this week of a so-called no cross talk provision, which is part of a nondisclosure agreement that they have to sign to gain access to sensitive financial information about the company, the sources said.
The provision irked several potential buyers, including private equity firms that had been planning to team up to bid for Yahoo. They have refused to sign the nondisclosure agreement, and one source went so far as to call the provision a deal-breaker.
With a market value of about $20 billion, Yahoo is likely too big for any one party to swallow, with the exception of possibly Microsoft Corp.
The board is taking action that is not conducive to the process, said the source, who spoke on condition of anonymity.
Implementing a no cross talk policy gives Yahoo more control over its strategic review. The company is not opposed to a joint bid, but it wants to encourage competition and avoid all the bidders forming one giant consortium, according to another person familiar with the situation.
If they can control it, they can pair people up in a way so that you have a couple of consortiums, said the source. Whereas if they let everyone talk to everyone, it could very well be -- given the size of the check -- that you end up having only one buyer to bid on and then you have no tension in the auction.
A Yahoo spokesman declined to comment.
Over the last few weeks, private equity firms including Bain Capital, Silver Lake, Providence Equity Partners and Hellman & Friedman LLC have stepped up efforts to partner among themselves or with potential strategic buyers, such as Chinese e-commerce giant Alibaba or Microsoft.
AOL Inc Chief Executive Tim Armstrong is also actively trying to sell investors on a deal with Yahoo, though that is viewed to be a very long shot.
Private equity firm Blackstone Group, has also expressed interest in the Internet giant, said one of the sources. A Blackstone spokesman was unavailable for comment.
The Wall Street Journal reported on Wednesday that some private equity firms are valuing Yahoo at between $16 and $18 per share. By comparison, Microsoft offered as much as $33 per share, or $47.5 billion, for Yahoo three years ago.
Yahoo shares rose 3.04 percent to close at $15.94 on the Nasdaq on Wednesday.
Given the poor lending environment and lukewarm interest from strategic buyers, a club deal involving at least two or more private equity firms is seen as necessary to getting a deal done, sources said.
But it would be hard for interested parties to put together an offer without access to detailed information on such things as the contractual agreements between Yahoo and its investment partners Alibaba and Softbank, or details of the search pact with Microsoft.
The good news is there is a decent amount of information out there on Yahoo, but it is not at the level to do real due diligence, said the second source. You need to get under the covers there to peel back and see if the metrics are working in different business lines.
If Yahoo insists on the provision, it could heighten pressure on co-founder Jerry Yang, who has been criticized for not acting in the best interest of shareholders. The prevailing perception is that Yang derailed the Microsoft talks in 2008.
Yang and Tim Morse, who was appointed interim chief executive after Carol Bartz was fired in September, have been driving the strategic review process, sources said.
Yang is interested in a deal with private equity firms to take Yahoo private in part because he sees that as the best option for preserving his connection to the company, Reuters has reported.
Financial information on Yahoo is expected to be circulated to interested parties this week.