Yahoo! Inc. (NASDAQ:YHOO) stock is up about 36% since mid-February. No, the stock surge is not because Yahoo has unveiled any exciting growth plans to get it out of the doldrums. YHOO stock’s recent uptick is riding on growing optimism that the company is going to sell off its core assets or even the whole company outright.
Those core assets include its 15%, $30.0-billion stake in Alibaba Group Holding Ltd (NYSE:BABA) and $8.5-billion investment in Yahoo! Japan. Yahoo is also exploring the sale of $1.0 billion to $3.0 billion of patents, property, and non-core assets. (Source: “Yahoo CFO: We’re exploring sale of $1 billion-$3 billion in ‘non-core assets’,” VentureBeat, March 3, 2016.)
But recently, Yahoo’s board has found itself in a proxy fight that is putting pressure on the company about a sale. And Yahoo might be succumbing to that pressure, as the company sent out letters on Monday to potential buyers to submit preliminary bids for its core business and stakes in Alibaba and Yahoo! Japan. (Source: “Yahoo Sets April 11 Deadline to Submit Preliminary Bids,” The Wall Street Journal, March 31, 2016.)
Yahoo has given potential suitors until April 11 to provide details on how they would finance the purchase, what conditions would have to be met on the buyer’s end, and certain assumptions such as including plans to separate Yahoo’s core business from its other assets if necessary. (Source: Ibid.)
Yahoo has also contacted potential suitors including Verizon Communications Inc. (NYSE:VZ), IAC/InterActiveCorp (NASDAQ:IAC), and Time Inc (NYSE:TIME). (Source: Ibid.)
The move comes about a week after activist hedge fund Starboard Value announced a proposal to entirely replace Yahoo’s board of directors with its own choices. Starboard argues that Yahoo’s current board hasn’t shown enough of a commitment to selling the company.
Starboard has made earlier requests, such as demanding that Yahoo set up a committee to explore strategic options and announcing cost cuts. Starboard owned about 0.75% of Yahoo as of September 30, 2016, which makes the fund the 23rd largest shareholder in the company. (Source: “Starboard Value’s CEO contacted by potential buyers of Yahoo core biz,” CNBC, January 6, 2016.)
If you hold YHOO stock, you may be rewarded soon. How much of a reward, of course, depends on how much the company is sold for, which could come by Yahoo’s annual shareholder meeting in June or July.
According to Barron’s, there could be a lot more upside in YHOO stock, which will nicely reward investors who have held on for the long-term. Barron’s believes that YHOO stock is trading at a deep discount to the sum of its parts, which is about $51.00 a share. (Source: “Yahoo Investors Should Soon See a Payoff,” Barron’s, March 29, 2016.)
Back in January, Barron’s was also heaping praise on YHOO stock when it traded at about $29.00 a share. Barron’s argued YHOO shares were worth about $40.00, assuming the sale of the core business and some financial incentive to get Alibaba to repurchase Yahoo’s stake back in the company.
Alibaba shares have since risen about 10% since January, which makes the potential upside in YHOO stock greater than it was two months ago. Barron’s argues that YHOO stock is now worth $43.00 a share in a break up and sale scenario and $45.00 a share if the company is sold in its entirety.
If Yahoo is sold for somewhere in that range, that would represent a gain of about 16%–22% from today’s stock price of $36.95.
The Bottom Line on YHOO Stock
It looks like Yahoo is finally getting serious about a sale, which could come as soon as the summer. Until then, YHOO shareholders will have to be patient for their payoff.