Buyout Looms Over Yahoo

It's no surprise that increasingly there have been talks of spin-offs, restructurings, and now an outright sale of Yahoo. CEO Marissa Mayer is constantly criticized for her managerial decisions at the company, and despite having four years to implement various aspects of her plan has not seen much, if any, success.

Yahoo! Inc. will begin approaching potential corporate and private equity buyers as soon as Monday as the Web company seeks bidders for its core business, according to people familiar with the process.

Companies such as Verizon Communications Inc., Comcast Corp. and AT&T Inc. are among interested parties, as well as buyout firms including Bain Capital Partners, KKR & Co. and TPG, the people said, asking not to be identified as the situation isn't public. The potential first-round bids for the business are unlikely to come in for at least a month, they said.

I'm not a big fan of the direction Mayer has taken the company, and I would like to think that there remains some valuable assets that can constitute a healthy business in the future-- my question is, what would you do differently from Mayer in order to keep Yahoo as an internet giant?

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Comments (24)

Dec 31, 1969 - 7:01pm

Yahoo: The Fate and Future of a tech giant (Originally Posted: 12/15/2015)

Yahoo

Yahoo, once known as the guide to the internet, is now facing some rather gloomy days.

In 2012, Yahoo announced Marissa Mayer as its new Chief Executive Officer. During this time, shareholders and employees alike shared in this optimism that her successful tenure at Google would translate into a fruitful period of growth and turnaround at Yahoo. This notion was also supported by the fact that, during Marissa's first year, Yahoo was the number one purchaser of companies and averaged an acquisition per 16 days. One of the most famed purchases during this period was Tumblr, which was bought out for about $1.1 billion.

Unfortunately, however, Marissa's efforts did not prove successful. Yahoo's shares are trading at a 30% discount since the beginning of Fiscal Year 2025 and the company's market valuation is quite beaten up. The company's current valuation is approximately $31 billion. However, Yahoo's stake in Alibaba, alongside its Yahoo Japan assets make up for most that $31 billion valuation. Effectively, then, Yahoo's core business is valued anywhere between $3-$5 per share.

Initially, to augment shareholder value, the company decided to spin-off its stake in Alibaba as a separate company. However, once the IRS declared that the company will not receive any special tax accommodations, the company reverted on its plan.

The Deal

The current strategy, then, that is being echoed in the finance and tech community is to sell off Yahoo's core internet business. Now, while it is true that Yahoo's advertising and search platform has been shrinking, the website still attracts about 200 monthly visitors, which is a huge audience and provides huge value potential for prospective buyers.

As for prospective buyers, Verizon Wireless's CFO has stated that Verizon will look into acquiring Yahoo. After all, a Yahoo acquisition will complement Verizon's purchase of AOL and as the Wall Street Journal put it:

"AOL has specialized in helping third-party websites sell more ads, while Yahoo brings with it a vast pool of registration data and email addresses. The combination of AOL's reach, data from Verizon's wireless business and Yahoo's data might help create a more formidable rival to ad-tech behemoths Google and Facebook."

Barry Diller's IAC/InterActive Corp has shown interest as well. Given IAC owns numerous websites like CollegeHumor.com, an addition of Yahoo might help IAC expand its reach to a host of Yahoo's clients on the mobile platform. Or as the Wall Street Journal stated:

"For IAC, whose stable of Web properties includes CollegeHumor and About.com-and which recently hived off its Match online-dating division-a deal with Yahoo could bring in a high-profile asset with tremendous reach on mobile platforms."

Other parties such as Private Equity firm TPG Capital, NewsCorp, SoftBank Group of Japan and other such entities might be interested in buying the different media assets of Yahoo.

Therefore, it is clear that Yahoo has clients willing to buy its core business.

The Question

However, the question that remains is will Marrissa Mayer and the entire Board of Directors give into shareholder demands and spin off Yahoo's core business?

Or, will the board find alternatives to spinning their stake in Alibaba to return shareholder value? Or, should the company go private, be restructured, and a new CEO be appointed? After all, Yahoo has had multiple different CEOs since 2007.

Or, should the company formulate a different turnaround strategy, and execute on driving Yahoo back to growth?

What do you guys think?

Dec 31, 1969 - 7:02pm

I think its a bit premature to start talking a Yahoo carve out. While Marissa Mayer's days may be numbered there is still fight left in the company. What is likely to happen is Yahoo either finds growth within the context of Alibaba and its other acquisitions or face a continued devaluation which will lead to it facing mouth licking PE wolves. There is still a lot of great talent there so in theory there is the makings of a comeback.

Does anyone else think one of Yahoo's biggest woes is Marrissa Mayer? I'm a big fan of companies that source its leaders from within. More times than not this works better than taking a transplant from elsewhere and sticking them at the head of a sinking ship. While Mayer came in swinging; making a few great acquisitions, the writing was always on the wall. She never fully understood Yahoo's core business - something she would have known had she risen through the ranks or at least put some years in before being head. This, some bad acquisitions/pivots, and high expectations make for a difficult battle and disgruntled investors.

Dec 31, 1969 - 7:03pm

Yahoo downsizing (Originally Posted: 04/04/2012)

Hi Monkeys,

I Just had the time to read the article on wsj regarding yahoo's effort to save the company.
If yahoo starts to shake doesn't that mean it will be a signal for other companies in the same industry? share your two cents, cheers!

Read Yahoo CEO's Letter to Employees About Layoffs
http://blogs.wsj.com/digits/2012/04/04/read-yahoo-ceos-letter-to-employ…

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Dec 31, 1969 - 7:07pm

Layoffs come and go, I wouldn't raise any flags about it. But I could be wrong.

"It's outrageous, egregious, preposterous. "
Dec 31, 1969 - 7:10pm

Given the liquidity of the company, it's a strange move. Usually PIPEs are done with illiquid stocks.

This may actually work out for shareholders that are willing to stick with the company because I believe that it is the first step towards a take private that will ultimately occur at a premium to today's share price.

Dec 31, 1969 - 7:11pm

Personally, I think that it will be better if Yahoo! gets taken by a PE firm like KKR (more objective). With Jerry Yang still on the board, the development of Yahoo! will be stalled (like how he rejected Microsoft's offer). It's such a pity to see a solid company go down.

Dec 31, 1969 - 7:14pm

Yahoo urged to sack chief over résumé (Originally Posted: 05/04/2012)

Yahoo, the troubled US internet company, is facing a fresh leadership crisis following growing calls for its board to sack new chief executive officer Scott Thompson for overstating his educational achievements.

The calls on Friday came from experts on corporate ethics, who said the company had to act if Mr Thompson was found to have lied on his personal résumé, as well as from Third Point, a dissident investor that has led a revolt against Yahoo's board...

ft.com/intl/cms/s/0/c99b18d0-9615-11e1-a6a0-00144feab49a.html#axzz1tweFHbtL">Link to article

Talking about trolls...

[quote]The HBS guys have MAD SWAGGER. They frequently wear their class jackets to boston bars, strutting and acting like they own the joint. They just ooze success, confidence, swagger, basically attributes of alpha males.[/quote]
Dec 31, 1969 - 7:17pm

A professor at Yale SOM made a really good point about this, basically saying: Even if this doesn't directly speak to his qualifications, how can he possibly expect to enforce any kind of compliance or integrity policy throughout the organization from here on out. It's all about tone from the top, and Yahoo has a bad one with Scott Thompson at the helm.

Dec 31, 1969 - 7:18pm
Boothorbust:
A professor at Yale SOM made a really good point about this, basically saying: Even if this doesn't directly speak to his qualifications, how can he possibly expect to enforce any kind of compliance or integrity policy throughout the organization from here on out. It's all about tone from the top, and Yahoo has a bad one with Scott Thompson at the helm.

Just imagine him looking down at the engineers, when he's only gone to this introductory course to computer science. It amazes me how these things can slip by...

[quote]The HBS guys have MAD SWAGGER. They frequently wear their class jackets to boston bars, strutting and acting like they own the joint. They just ooze success, confidence, swagger, basically attributes of alpha males.[/quote]
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