Monday, April 25, 2011

Yahoo! Wears a Target Once Again

By Eric Jackson
RealMoney Contributor

4/25/2011 1:00 PM EDT
Click here for more stories by Eric Jackson

Kara Swisher's Good Friday post in The Wall Street Journal about several potential acquirers taking another look at Yahoo! (YHOO - commentary - Trade Now) was very interesting in a number of respects, and it should reignite the shares, which have languished since last fall, which was when Yahoo! was most recently the subject of buyout chatter.

  • The story suggests that there is renewed interest among potential buyers of the core Yahoo! business.
  • It suggests that the board of Yahoo! has changed its tune in terms of doing a deal for the company.
  • It sounds to me that there is increased seriousness on all sides about doing a deal now.

Swisher is not someone who publishes for the sake of link-baiting. She takes her craft of journalism very seriously, and that is why she's the best at her beat.

According to Swisher, the current potential suitors for Yahoo! are the same as the old ones: News Corp.(NWS - commentary - Trade Now), Microsoft (MSFT - commentary - Trade Now), AOL (AOL - commentary- Trade Now), Disney (DIS - commentary - Trade Now), Providence Equity Partners and even Morgan Stanley (MS - commentary - Trade Now). And another player, former News Corp. president Peter Chernin, is also reported to be interested in doing a deal. What a deal might look like and what roles these various partners might play are topics that are still being bandied about privately.

The biggest open question from all the new information discussed in the post is, what will happen to Yahoo!'s stake in Alibaba Group? For example, if Providence and News Corp. and Microsoft all joined forces and bought Yahoo!'s core business, doesn't Alibaba (and Softbank for that matter) have a veto on this deal? This question came up at the time of the Microsoft bid, but to my knowledge it has never been answered.

Presumably, Alibaba would love to buy back Yahoo!'s 40% stake in Alibaba at a cheap valuation. If Alibaba did offer to do so at a low-ball valuation -- and if Yahoo!'s board accepted -- it would be offensive to Yahoo! shareholders.

As a Yahoo! shareholder, I have a hard time seeing how I'm better off with these assets under the care of News Corp., or Microsoft or Providence Equity or Peter Chernin. Are any of them going to pay me $60 for my shares? That's going to be a tough number to sell to any board. But Yahoo!'s shares are going to be worth that by 2015 -- by my estimates -- even if Yahoo! CEO Carol Bartz utterly fails to turn around the core business. That's simply from the expected growth of the private assets of Alibaba.


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