A Bidding War for Yahoo! Stock?
These weeks are decisive in the fate of Yahoo! Inc. (NASDAQ:YHOO) stock. The company’s future has different potential scenarios, from a breakup of assets to an outright sale. Either way, it is an exciting time for Yahoo! stock. In fact, Yahoo! shares have been rising steadily since a month ago. One of the key concerns is what kind of strategic transactions will occur.
The only certainty concerns the 15.5% stake in Alibaba Group Holding Limited (NYSE:BABA), which alone is worth some $30.0 billion. CEO Marissa Mayer decided not to spin off Alibaba, citing fiscal risks. Instead, the CEO’s strategy has been to sell Yahoo’s core companies. These include the search engine, the e-mail service (which was the most popular e-mail service in 2009), and the news section.
These assets are crucial for Yahoo! stock, because they may have sparked a bidding war among some 40 companies, including Time Inc. (NYSE:TIME) and Verizon Communications Inc. (NYSE:VZ), the telecom giant that already has AOL under its belt.
Yahoo! is also thinking of making YHOO stock more attractive by selling some of the company’s individual country units. Yahoo! Japan alone would be worth $8.0 billion. Yahoo! Japan’s search engine is the most widely used of all, which is why it could fetch the highest price. (Source: Taylor, T., “Yahoo! Inc. CEO On a Secret Mission,” Business Finance News, March 4, 2016.)
But, Yahoo!’s CFO, Ken Goldman admitted during the Morgan Stanley Technology, Media & Telecom Conference that Yahoo! is also mulling the sale of patents, property (including real estate), and other non-core assets. These alone could raise up to $3.0 billion—and this would happen sooner than later. CEO Marissa Mayer does not want to give up her post. Her strategy is to generate cash, selling major assets, while retaining the core and the Alibaba stake. (Source: Sherman, A., Womack, B., “Yahoo Still Searching for Ideas as It Adds Advisers to Help,” BloombergBusiness, March 3, 2016.)
The future of Yahoo! stock may have entered rumor mill territory, but it is only a matter of time before the asset fire sale begins. Yahoo! has hired Goldman Sachs, JPMorgan Chase, and PJT Partners as financial advisors. It is also exploring “strategic options” after laying off at least 10% of its workforce. Ultimately, Yahoo! shareholders and investors may prefer the company sell its core businesses rather than spinning off multi-billion-dollar stakes in Yahoo! Japan and Alibaba. (Source: “Yahoo exploring sale of $1 billion-$3 billion in ‘non-core assets’,” http://www.reuters.com/article/us-yahoo-assets-idUSKCN0W52F2, CFO, Reuters, last accessed March 7, 2016.)
Many “former glory” companies want to get their mojo back. They see Yahoo! as the key to this rediscovery. Time can benefit from Yahoo! and that’s why it is likely to make a serious bid. An eventual Yahoo!-Time deal could spur a YHOO stock rally. Time wants an autobahn into the digital business space. Last February, Time acquired the parent company of “Myspace,” Viant.
Telecom giants like AT&T, Verizon (former owner of AOL), and Comcast, in addition to some private equity firms like Bain Capital, Kohlberg Kravis Roberts & Co., and TPG are also interested in big pieces of Yahoo!’s assets. All this interest has been helping Yahoo!’s stock price rise, even before anyone, least of all Melissa Mayer, has confirmed anything.