Yahoo! Inc. (NASDAQ:YHOO) is not officially up for sale, but as of this week, the company has hung a “For Sale” sign on some of its core assets. It may only be a matter of time before Yahoo puts its entire company up for sale.
As of yesterday, reports of potential buyers interested in Yahoo’s core activities are echoing in the media. Such is the interest in the company that Yahoo stock could see significant gains resulting from what is shaping up to be a bidding war. Yahoo has hired Goldman Sachs, JPMorgan Chase & Co., and PJT Partners as financial advisors. The company is also exploring “strategic options” after laying off at least 10% of its workforce.
Robert Peck, analyst at SunTrust Robinson Humphrey, noted that as many as 20 potential bidders have made offers for either all of Yahoo or its parts, even if the company appears not to have acted on any of these offers. (Source: “Yahoo!: ‘Melting Ice Cube’ Must Engage Prospective Buyers, Says SunTrust,” Barron’s, February 18, 2016.)
For the record, Yahoo stock is currently sitting at a bargain price. So far, in 2016, Yahoo! shares have lost 10%, while they closed 2015 down by a hefty -34%. But bargain hunters should consider acting quickly ahead. Yahoo’s asset disposal will be more of a Sotheby’s auction than a fire sale.
A major sell-off is the catalyst for Yahoo stock that everyone can agree as a solution to the company’s problems. Some see a failure to address the current purchase proposals as Yahoo simply waiting for the right offer. Indeed, should the latest rumor be true, Time Inc (NYSE:TIME), a company that publishes 130 magazines, including Sports Illustrated, People, and Time, is thinking seriously about acquiring Yahoo’s core business. (Source: “Time Inc. explores bid for Yahoo’s core business,” Reuters, February 23, 2016.)
Time appears to be serious about purchasing Yahoo and it has already discussed the acquisition idea with bankers from Citigroup. (Source: Ibid.) The actual transaction numbers remain undisclosed, but it could take form as a Reverse Morris Trust, a transaction that aims to limit the fees that shareholders of the two companies would have to pay in a direct sale. The point that many owners of YHOO stock have been waiting to hear is on the table. Under new ownership, there would be no more room for CEO Marissa Mayer at Yahoo. (Source: “Time Inc. Said to Be Interested in Joining Fray of Yahoo Suitors,” Bloomberg, February 23, 2016.)
While pundits take in the irony of a traditional media company like Time taking over an Internet pioneer like Yahoo, it makes sense for Time to get into Yahoo. This is why the Yahoo-Time deal could spur a YHOO stock rally.
Time has looked everywhere for new space in the digital business. Indeed, along a similar logic, Time has recently pursued the acquisition of Viant Technology, a holding company that owns MySpace. (Source: “Time Inc. to Acquire the Assets of Viant, a Data-Driven Leader in People-Based Marketing,” Yahoo! Finance, February 11, 2016.) Before Facebook arrived on stage, MySpace, Facebook’s social media predecessor, had tens of millions of users.
As noted during the latest earnings presentation, Yahoo has officially launched the sale of its core activities. (Source: “The ‘for sale’ sign is up at Yahoo,” Business Insider, February 20, 2016.) The search engine, e-mail service (which in 2009 was the world’s most used e-mail service), and the news section are on the block. These are services that attract more than a billion users worldwide.
Evidently, Time Inc covets these numbers. Where this gets interesting for Yahoo stock is that Time is not the only one seeing potential.
Verizon and other telecom giants like AT&T and Comcast, in addition to some private equity firms like Bain Capital Partners, KKR, and TPG, are also interested in getting in on Yahoo’s action.
Then, of course, there is the matter of Alibaba, the jewel in Yahoo’s crown.
Yahoo is still the owner of a very large chunk (15%) of the Chinese e-commerce giant, Alibaba. At the end of 2015, that chunk was worth some $30.0 billion. Marissa Mayer refused to sell it because she was uncertain of how the tax authorities would treat the transaction. Thus, Yahoo management decided to consider alternatives, such as a reverse spin-off. In other words, under this plan, Yahoo seems ready to sell everything, including the kitchen sink, keeping only Alibaba.
Hence, the idea that Yahoo may be ready to sell its Web services with Time Inc. in its front row of suitors—for the moment anyway—along with Verizon. Verizon’s CEO, Lowell McAdam, sent a clear message to YHOO stock’s CEO Marissa Mayer on CNBC, confirming his interest in Yahoo.
Yahoo stock has reached the end of its era. A year from now, Yahoo! Inc. will look much different than it does now.