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While Working on Tax Deal, Mayer Eyes Display Acquisitions -- But Will Yahoo Aim Higher?

Read CFO Ken Goldman's lips: No new taxes!

Of the many bizarre ideas being floated by bankers and other sundry pundits about how Yahoo will handle the inevitable taxes related to its lucrative assets in the Alibaba Group and Yahoo Japan, one of the most far-out that I have heard of late has been that the company should buy BlackBerry.

Yes, the long-beleaguered handset maker that has been trying to turn itself around under CEO John Chen. Currently, the market cap for BlackBerry is $5.4 billion, which — even at a premium — is well within the amount that Mayer has to spend. It would also give the company a mobile device to work with, albeit at great cost and difficulty.

But while that may seem unlikely, sources close to Yahoo said it has been ferreting away over the past few weeks on several more big acquisitions, largely aimed at helping its flagging display business.

Among those being considered are a number of tech-related companies, including MediaMath, RadiumOne and Turn.

New York-based MediaMath, which makes tools for ad-buying and digital marketing, recently added $73.5 million in funding and more than $100 million in debt to its kitty; San Francisco-based RadiumOne is a real-time bidding online advertising platform that has raised over $30 million; Silicon Valley’s Turn is also a data and media marketing platform that has raised close to $140 million from investors.

While they all use different jargon — as described to me by Peter Kafka — at their core, they essentially help ad buyers purchase “programmatic” ad inventory. That is, buying stuff with computers instead of people, often in real time. This is a big push for the display ad business in general and something Yahoo should be a lot better at, given how all its competitors have done so long ago.

It’s probably a good idea to focus here, since CEO Marissa Mayer still has not gotten ahold of this core part of Yahoo’s advertising business since she arrived there more than two years ago. While she has been working on a number of fronts, the basic display business still makes up most of Yahoo’s revenue, and it has been quickly declining over that time.

Mayer would like to pretend otherwise, of course, preferring to put her hopes in future revenue. When Yahoo forked over $640 million for video ad platform BrightRoll, in fact, she tried to create a new catchphrase for the Silicon Valley Internet giant turnaround and point the direction to that sunnier day.

“Video is display 2.0,” she wrote on Yahoo’s blog.

Of course, this is a declaration that everyone else — especially Google and Facebook — figured out a long time ago, too.

Still, the video buy was needed, since Mayer is essentially flying a plane that she is simultaneously rebuilding. Thus, she has to deliver in the now — improving display — and then later in video and also mobile.

In an ideal world, Yahoo would do things to increase video consumption on its own site. But there’s nothing wrong with buying properties that allow her to profit when people run ads on other people’s sites, too.

That’s Twitter’s deal with MoPub, and that’s what Facebook is doing with its ad network and with Atlas. The closest parallel is what AOL’s Tim Armstrong has done, very successfully, with 5Min and later Adapt.TV, which allows him to capitalize on the demand for video even when it happens on other people’s properties.

All this acquisition activity, of course, is related to efforts by Mayer and CFO Ken Goldman to deliver on a publicly promised tax plan for the sale of its Asian stakes, aimed at using a variety of clever techniques to avoid paying enormous taxes on its gain.

These stakes are worth a king’s ransom, upward of $50 billion now, before taxes. This is more than all of Yahoo is currently worth, but Wall Street is discounting the value due to taxes that will be owed whenever those positions are liquidated. For example, Goldman said that the company will pay more than $3 billion in taxes on the sale of stock in the Alibaba IPO.

That’s why Goldman has stressed on calls with investors and privately that he is retaining the best tax experts around to help Yahoo pay a lot less taxes going forward. And sources said that he is preparing to unveil possible plans to do so soon, even though Yahoo cannot outright sell these stakes until next fall.

But it could do a number of other things before then. That might come in a number of ways, including spinning off the Asian assets in a cash-rich split-off, which Yahoo has considered before. Essentially, it would be able to trade its Asian assets back to the companies in exchange for cash and other assets that they would buy.

Or, as described by investor and Mayer irritant Eric Jackson, Yahoo could do something called a Reverse Morris Trust.

Wrote Jackson: “In this scenario, Yahoo’s Alibaba stake and possibly its Yahoo Japan stake would remain in the YHOO stock vehicle along with a small operating asset (say Yahoo’s listing business). The core business of Yahoo would get spun out into a separate entity. Some cash would go into the new entity and some would remain in YHOO.”

It will be interesting to see what Mayer and Goldman will cook up here. He has been loudly bragging to investors that Yahoo is thinking like John Malone, the cable magnate who was much more of a genius at finding complex ways to avoid taxes.

It has certainly been hiring outside help to make it so. According to sources, along with consultants McKinsey & Company, it has retained a spate of banks, including Goldman Sachs, J.P. Morgan Chase and others.

(Additional reporting by Peter Kafka.)

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