Who Will Control Yahoo? Bidders Race to File Buyout Offers For Storied Tech Giant
Yahoo, once so financially sound it considered buying Walt Disney Co., now slides toward a deadline that could see it acquired and even broken up into pieces.
Yahoo, arguably the Internet's first iconic brand, is heading into a monumental week that could spell an end to CEO Marissa Mayer's four-year effort to turn around a company that in its heyday was seriously considering using its fantastically-priced stock to acquire the Walt Disney Co.
The online pioneer that once dominated search and practically invented Internet advertising has set a Monday deadline for bidders interested in buying the company or some of its pieces, a stunning turn of events considering Yahoo was, for a brief moment in time, more valuable than any of the major media conglomerates. On Thursday, though, its market capitalization was $35 billion, compared to Disney's $162 billion and Comcast's $150 billion.
A day after Yahoo accepts bids, it is set to disclose quarterly earnings, which analysts now say will be 7 cents per share, half of what Wall Street was predicting just three months earlier.
But when analysts speak to management on Tuesday's conference call, it's a safe bet that what they'll really be interested in will be an update on the pursuit of "strategic alternatives" that Yahoo announced on Feb. 2, a response to more than three years of a stagnant stock price.
Yahoo’s valuation includes a $30 billion stake in Alibaba and $9 billion stake in Yahoo Japan, so some of its assets presumably could be had for a relative song compared to what they were worth in the pioneering days of the Internet.
“When you factor in taxes that Yahoo would have to pay if it sold those positions, then the rest of Yahoo is worth slightly more than zero,” says Eric Jackson, managing director of SpringOwl Asset Management, an activist hedge fund that owns shares of Yahoo. More specifically, Macquarie Securities analyst Ben Schachter estimates that the core Yahoo business could fetch up to $5 billion, and he forecasts $750 million in operating cash flow this year.
Jackson has been calling for Mayer’s ouster since last year and, in a 99-page slide presentation he posted on the Internet, he outlined a plan that includes cutting Yahoo’s workforce by 75 percent and slashing $2 billion in annual costs.
Yahoo’s efforts to find strategic alternatives includes the possibility of various assets going to several different parties. Sources say Yahoo has shared a 90-page data book with potential bidders and one person with knowledge of its content was surprised at how weak the financial information appeared.
In January, Yahoo was the second-most trafficked U.S. website in unique viewers behind Alphabet's Google and ahead of Facebook. Mayer’s turnaround plan has focused on three platforms: mail, search and Tumblr; and four verticals: news, sports, finance and lifestyle.
"Almost any media company or company with data-related assets will think they could manage it better," says Pivotal Research Group analyst Brian Wieser. "Most will find it complementary if not strategically advantageous." But, he added: "The question is, who wants the headache of acquiring, integrating and restructuring, and who will be willing to overpay?"
And Gabelli & Co. analyst Brett Harriss said in a recent report: “While the core business has suffered from years of mismanagement and profit erosion, Yahoo's built-in traffic could be highly valuable to an acquirer with demonstrated monetization capabilities.”
Yahoo isn't saying who it is talking to, but The Hollywood Reporter spoke to some insiders with knowledge of the process to come up with a short list of likely bidders and names that have been bandied about, but won't bid:
The telecommunications firm is widely seen as a frontrunner in the Yahoo auction. "That’s just an opportunity we will take a look at," CFO Fran Shammo at an investor conference in early March. "Does this fit? Is it strategic? … I don't think anybody knows what’s under the hood yet.” Verizon is pushing into digital video and has already purchased AOL and Intel’s online TV business, and Yahoo is seen as a logical next step — though a massive strike of 36,000 Verizon workers that began Tuesday could be a distraction.
Insiders say the parent of "Time," "People," "Sports Illustrated," "Real Simple" and several more magazines is on the fence about submitting a bid. If it does, it will likely be with the assistance of a private equity firm or a strategic partner. Time’s management team has experience with cutting costs and right-sizing distressed businesses and Yahoo would help it leverage its existing premium content across more platforms.
Daily Mail & General Trust
The parent company of the British newspaper, "The Daily Mail," told The Hollywood Reporter that, "Given the success of DailyMail.com and Elite Daily, we have been in discussions with a number of parties who are potential bidders.” Liberum Capital analyst Ian Whittaker said "there is a significant amount of unrealized value in DMGT's current portfolio of assets and this deal could help them realize this value on two fronts. Firstly, combining and spinning off Yahoo and DMGT's media businesses would allow them to leverage the scale of their combined inventory and Yahoo's ability to sell advertising in the U.S. Secondly, DMGT, ex their media business, would see a re-rating [of the stock] as they would be a higher growth business whilst being disassociated with their declining newspaper business."
While some see the Japanese conglomerate as a possible bidder for Yahoo, others say it may be interested in simply upping its stakes in companies it already owns portions of. SoftBank owns a 36.4 percent stake in Yahoo Japan and Yahoo holds 35.5 percent of that company, and SoftBank also owns a 32 percent stake in Alibaba while Yahoo owns a 15.5 percent share.
The Chinese Internet conglomerate wants more international assets, and Yahoo could fit the bill. Or, it may simply want its own shares back. Yahoo, in fact, was all set to spin off its stake in Alibaba, but those plans fell apart when it couldn't figure out a way to avoid massive tax implications.
The software company with an impressive $438 billion market cap could easily afford to overpay for the entirety of Yahoo. While some smart money says the company founded by Bill Gates has no interest in bidding, at least one insider says it remains a possibility. Microsoft, after all, has a lucrative relationship with Yahoo regarding the sharing of search results and the latter uses some of the former's Bing technology.
The leader in search would have obvious synergies with Yahoo, still one of the most recognized names on the Internet, but Gabelli & Co. analyst Brett Harriss says such a marriage would likely face an antitrust challenge. Instead, the analyst suggests Facebook scoop up Yahoo "to leverage its existing ad-serving platform and gain a foothold in search.”
Insiders say Twitter has looked at Yahoo’s books and is interested in at least parts of the company, though it likely couldn’t afford the whole thing (not without some big-pocketed partners, at least), given its market cap is $12 billion, roughly one-third of Yahoo’s. Twitter and Yahoo are both searching for growth, and marrying some of the best of Yahoo’s online assets with Twitter’s massively popular but recently underperforming platform could be an intriguing proposition.
TPG Capital, KKR and Silver Lake Partners
There are several more private-equity firms taking a look at Yahoo (Bain Capital and Providence Equity Partners, for example), but these three seem poised to participate in some sort of bid — though not necessarily together, according to insiders.
CBS, Univision, News Corp, 21st Century Fox, AT&T, Comcast and Liberty Media
All are said to have kicked the tires on Yahoo, but none are expected to submit bids. “Comcast and AT&T are always on the list of potential buyers, but their interest in Yahoo isn’t as strong as Verizon’s,” says Jackson of SpringOwl.