Verizon, SoftBank go head-to-head for control of Yahoo

Two ex-Googlers are upping the ante in a high stakes game of brinkmanship to take control of Yahoo.

In one corner is Tim Armstrong, once Google’s head of ad sales and now running Verizon’s AOL unit. In the other is Nikesh Arora, the president of Japan’s SoftBank and Google’s former chief business officer.

And in the middle is fellow Google alumna and Yahoo Chief Executive Marissa Mayer, who is fighting to keep her job.

Verizon is considered the front-runner and appears to have backing from key investors who have been battered by months of management zigzagging and like the idea of a simple cash deal.

Armstrong is also said to be offering Mayer a graceful exit and is willing to deal with the messy business of Yahoo mass firings.

While Verizon has made it clear it wants Yahoo’s “core” Web business, Armstrong is also interested in Yahoo’s 35.5 percent stake in Yahoo Japan, currently valued at $8 billion.

Still, “I don’t think Tim has the support for a very high bid,” said one source.

Meanwhile, SoftBank’s Arora is eyeing an acquisition of the whole of Yahoo, sources said, and has been hanging back to see what Verizon’s offer is before he makes a move, sources said.

Yahoo has set a deadline of April 18 for submitting preliminary bids for the Web business. The company also owns two lucrative Asian assets, a 15 percent stake in China’s Alibaba and a 35 percent stake in Yahoo Japan.

Several sources say they believe that, while there will be many bidders, the only real competition is between Verizon and SoftBank.

Softbank didn’t respond to an emailed request for comment. Verizon declined to comment.

Yahoo and SoftBank are already intertwined through their ownership of Yahoo Japan. SoftBank is the majority owner, with a 43 percent stake.

The tangled ownership structure also comes with some strings that complicate the sale of Yahoo. SoftBank pays $150 million to Yahoo for search services under a contract that expires next year.

There is also the 3 percent royalty SoftBank pays for using the Yahoo Japan brand name. It hit $90 million in 2015 — triple what it was in 2004. The long-term projected value of that contract is $2 billion, a source close to the process said.

“SoftBank wants to fix this,” the source said, meaning Arora wants to end this agreement.

One way for SoftBank to untangle Yahoo Japan is to buy all of Yahoo through a more tax friendly deal.

Under one scenario, SoftBank could create a new combined entity by having Yahoo Japan issue new shares to Yahoo’s existing investors, according to one source.

“SoftBank is the only realistic buyer to maintain Yahoo’s profitability,” said the source.