Rumors keep swirling around Yahoo Inc. (Nasdaq: YHOO) concerning buyouts, mergers, and consolidations. The flavor of the week: decoupling Yahoo Search from its "hard drive."
A Wall Street Journal report from December 2 stated that Jonathan Miller, former CEO of AOL, may pursue a takeover of Yahoo. Miller is believed to be in talks to raise money through private equity firms.
Rumor puts the offer in the $20 to $22 per share range for Yahoo (which is currently trading at about $11). However, there could be a fly in the ointment, as raising the $28 billion to $30 billion the deal would entail could prove next to impossible during the credit crisis.
Meanwhile, cash-strapped Yahoo is allegedlybeing courted by the cash machine Microsoft Corp. (Nasdaq: MSFT) again. Further fanning the flames of speculation is ubiquitous corporate raider Carl Icahn. With a fresh seat on the board of Yahoo and 6.7 million additional shares of Yahoo common stock purchased as of November 26, Icahn just may be the catalyst needed to get the merger finally completed.
Then there's this rumor: Microsoft is in talks to acquire Yahoo’s search business for $20 billion, as reported by UK Times Online and other sources. For this juicy rumor, the devil is in the details, where you can find some compelling tidbits:
The cornerstone of the complex transaction is a Microsoft-supported new management team to take control of Yahoo.
The team would be made up of Jonathan Miller (he of the speculation mentioned above) and Ross Lewinsohn, former president of Fox Interactive Media. The Times Online reports that senior directors at both Microsoft and Yahoo have agreed on broad terms to the team.
Under the new terms of the proposed transaction, Microsoft would pony up a $5 billion facility for the new Miller and Lewinsohn team.
The new management team would raise an additional $5 billion from external investors.
This cash would be exercised to buy preferred convertible shares and warrants in Yahoo, allowing the newly formed management team more than a 30 percent stake in Yahoo.
Furthermore, this external board would be allowed to elect three of the 11 directors.
Finally, the agreement would allow Microsoft to obtain a 10-year operating agreement to manage the search business.
Carl Icahn, as he demonstrated recently in a very heated and publicly disputed war of words with outgoing Yahoo CEO Jerry Yang, has been a strong proponent of a Microsoft buyout. Previously, Icahn had purchased 70 million shares of Yahoo for about $25 a share, (shares currently losing close to $900 million). On November 24, 25, and 26, Icahn purchased another 6,778,804 shares for an average price of $9.92 per share. This upped his stake in Yahoo to 5.5 percent, according to The Wall Street Journal, fueling new speculation of an imminent deal.
There are two theories circulating on Icahn’s recent purchases, the first has been reviewed above. The second emerges in Kara Swisher's column on All Things Digital, which states that Yahoo's next CEO may be one of “two execs whom Icahn brought with him to the Yahoo board - either former media exec Frank Biondi Jr. or, more likely, former Nextel exec John Chapple.”
Swisher believes an objective candidate is important, but she maintains that “selling media and ads is different than selling gadgets, and we’re skeptical that these new folks have the right experience.”
So, there’s the update on Yahoo's ongoing saga. As of this printing, all these rumors are being dispelled or stonewalled by Microsoft and Yahoo execs and their press corps.
Still, methinks they protest too much. From $8.94 on November 20 to $11.91 in December tells me something meaningful is brewing.
— Chris Poley has been a professional trader for over 20 years
dcilea, I never thought of Apple in the Internet content business. I think their core competence is and should remain in hardware. It's hard enough to fight a tech battle on one front yet alone two......just ask Microsoft.
Is it outlandish for Apple to consider purchasing Yahoo? Doing so would give Apple another widely used platform to promote their products and services. More importantly, Apple's innovative thinking can disrupt the existing search business (like they did the PC, music and phone industries) and uniquely position them for cloud computing and the ever-evolving media and enternatinment business.
I am in your camp 100%. There is no compelling arguement as an investor to own either Yahoo (NASD:YHOO) or Sprint (NYSE:S) in your portfolio. But as a speculation trade, i.e. rumors and the like, there is opportunity to scape a buck or two from their lifeless carcasses.
I must admit that I have something against Yahoo and I overlook how well recognized their brand is. The same happens with Sprint - they have a pretty substantial market share but I don't see them doing anything.
I try to stay away from those companies' stocks even if I see a good opportunity... they somehow disappoint me.
This by far is still the quintessential business model for Internet revenues. Consolidation should pick up in the coming months. I think we're in for some exciting M&A announcements.
Chris: Sorry, sometimes I just have to jab investors (of which I am one) and offer the reminder that, Adam Smith aside, the markets and investors don't always act rationally.
Terry: Thanks--I think that those of us in the technology arena often think that these kind of takeovers are about the technology, but we have to remember that selling access to the eyes of the consumer/user is the only real money maker in technology. And that's true regardless of what industry or market niche.
Agree with you both, Leland and Chris, on this audience-as-prize idea. Yahoo's got this highly diverse user base -- diversified in interests, geography, and how they use the Internet or the Yahoo sites.
Maybe they use it for news feeds, or for Yahoo Messenger, or its 8 jillion Yahoo groups. This is a rich, qualified, registered base for targeted advertising. Watching them try to assign a value to that will be a fun execrise no doubt.
Leland, I agree with everything you've written except your final statement. The 65% premium offered by Microsoft for all of Yahoo back in May, in hind sight seems a bit frothy.
Beyond that, according to Alexa http://www.alexa.com/site/ds/top_500 Yahoo is ranked second in traffic. If this is the case, there is a compelling argument to why so much interest in Yahoo. As a brand, Yahoo is certainly one of the most recognizable in the world.
The company is not completely broken, just battered and bruised. Once Jerry Yang's replacement is found and new management is in place, Yahoo could make a serious comeback.
However, it is vital to Yahoo's future to get the change in power completed ASAP. Microsoft has just hired Qi Lu (a top executive at Yahoo) as president of their online services group. The exodus of top execs. is underway and that will derail any comeback for Yahoo!
The only analog I can come up with for why the acquisition of Yahoo would make sense comes from the cable and telephony industries. It's basically 'number of homes passed.' Or another way of putting it, they're acquiring subscribers. And I'm sure the thought is, the more subscribers, the more eyes for advertisers. Thus far, Yahoo has been far less intrusive in its web-mail advertising than Google, but with the boys in Redmond in charge, I'm sure that would change. And that just might add up to a lot more ad revenue.
Or it could just be another case of 'Daddy I want a new toy to play with.' Never mind that the last bunch of toys that daddy bought baby were broken into a million worthless pieces.
The benefits for a Microsoft acquistion would obviously be Yahoo Search. This is the crown jewel of Yahoo! and outside some recognizable branding the rest of the company is ho-hum. Microsoft also sees value in the human resources that come with ownership, there still is a world of talent there. Finally, Steve Balmar has set Microsoft's sites on going head to head with Google, and dissecting the corps of Yahoo increases their credibility in search, at the very least.
The cost side of the equation falls completely on the acquirer. Yahoo is cash poor, talent rich and as of today it's only redeaming quality is that its in play. The management and Board of Directors is second only to Citi Corp. as being the biggest disaster this side of Catrina. Yahoo is clearly worth more when selling off the profitable pieces than buying the whole company.
Fianally, What is Yahoo! worth? $11.32 a share, until the next quote.
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