This Could Be Huge for Time Stock
Time Inc (NYSE:TIME), the publisher of the eponymous magazine, Sports Illustrated, and People, intends to resolve one of the biggest business questions of our time: what’s going to happen at Yahoo! Inc. (NASDAQ:YHOO)? Time stock has gained some 20% in the past three months, though it was down slightly as the company said it plans to join an investment fund bid for Yahoo’s Internet activities.
The move would allow Time to re-invent itself or at the very least, develop its online presence. This is good for Time stock. Time could potentially gain a web portal, a news site (Yahoo! News), and an e-mail service (Yahoo! Mail) that still has a strong userbase. (Source: “By the numbers: 45 Amazing yahoo Statistics,” Expanded Ramblings, November 7, 2015.)
Time Inc has suffered a sharp drop in advertising revenue. It sees a bigger digital presence, by acquiring online assets, as the tool for a revival. In 2015, Time Inc revenue dropped five percent to $3.1 billion.
Time attributed the drop to 10% lower print advertising revenues. Meanwhile, the solution became rapidly apparent as online advertising revenue generated in the same year increased by 11%. Hundreds of millions of users still rely on Yahoo’s homepage and other sections (such as Finance and Sports). Yahoo said it had one billion users a month worldwide in 2014. That traffic is what media companies like Time want to regain advertisers’ attention. (Source: “Yes, Time Inc. Buying Yahoo Actually Makes Some Sense. Here’s Why,” Fortune, February 23, 2016.)
However, for Time, acquiring Yahoo’s core business is an ambitious project. It needs significant leverage. The deal may remind investors of the big leveraged buyouts of the late 1980s, such as the KKR & Co. buyout of RJR Nabisco. The possible use of a partner to launch a bid for its Yahoo! Activities—valued at several billion dollars—highlights the limited means available to Time Inc, whose market capitalization is $1.6 billion. (Source: “Time Inc. Considers Taking on Private Equity Partner for Yahoo Bid,” NBC News, April 4, 2016.)
But the use of a partner also highlights today’s more cautious approach to risk.
Time’s best prospect for Yahoo is through a consortium. The deadline for offers is April 11 and while Time Inc has yet to choose the fund with which it will link for the Yahoo purchase, it should be able to find a partner among those filing their intentions before the deadline. The list includes The Blackstone Group, KKR & Co., TPG Capital, Apax Partners, Warburg Pincus, Bain Capital, and Hellman & Friedman. All these funds are considering bidding on Yahoo’s Internet assets. (Source: Ibid.)
In late March, a source said that Microsoft officials were also discussing an offer for Yahoo assets in partnership with an investment fund. Verizon, owner of the Internet company AOL, is also likely to bid for Yahoo assets as well.
In December, Time added Hulu, Yahoo, and Zealot Networks to distribute its growing amount of original video. (Source: “Time Inc. Taps Hulu, Yahoo, Zealot Networks For Video Distribution,” Variety, December 10, 2015.)
Yahoo simply offers valuable pieces for Time to use in expanding its own media brand. In early February, Time announced its intention to explore “strategic alternatives” for its main Internet activities. These include messaging, search and news sites, and reducing its workforce by 15% while continuing the recovery project and meshing these activities together in a new entity.