With sales hovering around 2006 levels, investors’ patience began to wane, and activist shareholder Starboard Value last month called for the company to drop the Alibaba spinoff and instead sell its Web businesses.
Advertisement
When asked if Yahoo would entertain an offer to buy its online operations, Webb told CNBC that Yahoo’s board would have a fiduciary duty to consider it. But he told the New York Times that if a bid were to emerge, “it would probably be a lowball offer”.
With Yahoo apparently having changed its plans due to technical and tax-related reasons, James Angel – Associate Professor of Finance at Georgetown University’s McDonough School of Business – said that Yahoo would now be achieving “the same strategic benefits, but in a backward sense”. Its shares rose more than 2 percent in after-hours trading.
Verizon bought Yahoo rival AOL Inc, another Internet pioneer, earlier this year for about US$4 billion.
Of course, all of this is subject to third-party consents, audited financial statements, shareholder approval and SEC filings and clearance, which could take at least a year to execute. It also may raise more doubts about whether Mayer will be able to turn around Yahoo, even though company Chairman Maynard Webb said Wednesday that the board of directors remains in her corner after three-and-half years on the job.
Yahoo’s plan to spin off its stake in Alibaba hit a hurdle in September when the IRS denied the company’s request for a ruling on whether the transaction would be tax-free, potentially costing shareholders billions in taxes. But bottom line, it means the troubled company can more easily sell itself to willing buyers, if it can find any.
“With a large part of our market capitalization driven by our Alibaba stake, a separation will provide greater transparency to ensure that Yahoo’s business operations are accurately valued, especially as we continue to improve Yahoo’s products and operations”, Mayer said. AT&T Inc. just purchased DirecTV for $48.5 billion and is working on integrating the two companies.
“The challenge with the reverse spin is that the operating company – warts and all – will be on display for the market to evaluate”, said Paul Sweeney, a Bloomberg Intelligence analyst.
Private-equity firms are expected to be among those taking a look at Yahoo’s core business, people familiar with the matter said.
Investors were unenthusiastic as they digested the complexity of the “reverse spin-off”.
It also owns 35 percent of Yahoo Japan, a joint venture with Japanese tech company SoftBank, a stake worth another $5 billion. The rest of Yahoo is worth $3 billion to $8 billion, according to analysts’ estimates.
The plan to spin off the Alibaba stake would have been far simpler, he added. T-Mobile US Inc. has been critical of other carriers’ moves into media and is focused more on the business of delivering music and video. How’s Wall Street reacting?
The creation of a new entity would take a year or more will likely take Mayer’s focus away from turning around the Internet business.
These segments of the business have been growing, but Yahoo’s overall performance has been uneven, leaving its investors unsettled.
Advertisement
A Yahoo sale of its Web business might have more symbolic significance than anything else.
