Alibaba Could Surprise by Actually Buying Yahoo! (Update 1)

Updated from 11:30 a.m. EST to include comments from analyst, another source and the recent share price.

SUNNYVALE, Calif. ( TheStreet) -- Alibaba's CEO Jack Ma has been to known to pull a few surprises every now and then, and buying all of Yahoo! ( YHOO) could be the biggest of all. Sources close to the matter said that Alibaba could potentially acquire all of Yahoo!.

Reuters reported that Alibaba has hired a Washington-based lobbying firm for the first time in its history, which could be a precursor to a bid for all of Yahoo!.

A source close to the matter said the lobbying firm was retained in the fall, as part of a preparation in a bid for the entire company, along with other potential bidders. Alibaba is still interested in any number of possibilities regarding Yahoo!'s outcome, but that it is still considering what is best for Alibaba, the source said. Alibaba wants to be more of a global company than it already is. Acquiring all or part of Yahoo! would help Alibaba achieve a greater scale globally.

Ma has previously stated that he would buy all of Yahoo! if he had the chance. Ma has also said that he has no interest in running Yahoo!, and that there are a number of good, U.S.-based candidates for the job.

Presumably, Washington may have an issue with a Chinese-based Internet company buying all of a U.S.-based Internet company, as previous planned acquisitions have been stopped because of "national security concerns." The source noted that data security may be the issue, with not all data being considered equal.

By hiring the Duberstein Group, this potentially leaves the option for Ma and his team to ease the political tensions of going it alone and strengthening its position in the valuable U.S. market.

Alibaba already has a strong presence in the U.S., with over 3 million users, having been in the country for 12 years, the source said.

Yahoo! owns 40% of Alibaba, and Ma has reportedly been working with a consortium of investors to buy all of Yahoo!, with Alibaba taking back its stake and private equity firms such as Blackstone ( BX) and Bain Capital taking the rest. Hiring a lobbyist may indicate otherwise.

Morningstar analyst Rick Summer says Yahoo!'s board is trying to remain as independent as possible, "unless the offer was at a significant premium to today's prices." Summer has a fair value on Yahoo! at $17.

Yahoo! has been discussing selling off just its Asian assets, and talks appear to be intensifying on that front, but the hiring of a lobbyist firm with ties to the Reagan administration (Kenneth Duberstein was President Reagan's chief of staff) could ease the any national security concerns for Alibaba. It was reported last week that the process could take six to eight weeks.

Alibaba and Yahoo! Japan account for nearly all of Yahoo!'s current market cap. Recent valuations have pegged Yahoo!'s stake in the two companies at $17 billion, with Yahoo!'s current market cap just under $20 billion.

Further adding credence to a potential bid is the lobby registration filing shows law firm Wachtell, Lipton, Rosen & Katz, which deals in mergers and acquisitions. The law firm is listed as an intermediary between Alibaba and the Duberstein group. The registration was received by the U.S. Senate on Dec. 23, but the filing notes the effective date as of Dec. 1. Alibaba may be realizing the value in owning all of Yahoo!'s properties, as opposed to just buying back its stake.

There have also been reports of private equity firm Silver Lake Partners looking to buy a minority stake in Yahoo!, but that appears to have been quashed for now.

Yahoo! shares were higher in Thursday trading, up 2.1% to $16.11.

Interested in more on Yahoo!? See TheStreet Ratings' report card for this stock.



-- Written by Chris Ciaccia in New York

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