Yahoo, don't blow it -- again

Accept a buyout offer when it comes. It is the only sensible move.

By InvestorPlace Dec 1, 2011 1:12PM

By Jonathan Berr


Yahoo (YHOO) should take the money and run -- fast.


According to Reuters, Blackstone Group and Bain Capital -- along with some Asian partners -- are preparing a bid of about $25 billion for all of the Internet portal. It remains unclear whether China's Alibaba, which wants to buy back Yahoo's 40% ownership stake in it, will participate in the $20-per-share bid, though it seems likely it would.


The offer represents about a 27% premium over Yahoo's closing price of $15.71 on Wednesday and would be superior to the $16.60 bid that a group of investors lead by Silver Lake, a private-equity firm, reportedly made for a minority stake the Sunnyvale, Calif., company. It's also less complicated.


According to Bloomberg News, Silver Lake and a group of investors, including Microsoft (MSFT), offered to buy about a 10% to 15% share for $3 billion. The deal would be in the form of convertible preferred securities. As a sweetener, Bloomberg points out that Yahoo would be able to distribute as much as $5 billion as a special dividend, or do a share buyback. Investors, who have seen Yahoo shares decline by more than 40% over the past five years, probably won't like either option: They're short-term fixes that won't address Yahoo's long-term problem, which is staying relevant. (Microsoft owns and publishes Top Stocks, and MSN Money site.)


Co-founder Jerry Yang and the Yahoo board have never rebounded from their disastrous decision in 2008 to reject Microsoft's $44.6 billion offer. Veteran tech executive Carol Bartz, who was hired as the CEO in 2009 and fired earlier this year, was unable right the lumbering Internet pioneer. The company has been adrift ever since and has yet to name a successor to Bartz. Given Yahoo's situation, what sane person would want the job?


Earlier this week, AOL (AOL) CEO Tim Armstrong ruled out a merger with Yahoo. It's easy to understand why. Combining two weak companies wouldn't necessarily create a stronger enterprise. Wall Street isn't too keen on AOL's management either, sending shares of the New York company down nearly 40% this year. Yahoo, whose shares have risen on takeover speculation, is down only 2% during that same time period.


Besides, AOL has had more than its fair share of problems integrating acquisitions. The feud between TechCrunch founder Michael Arrington and the Huffington Post's Arianna Huffington over the launch of Arrington's venture capital fund CrunchFund is just one high-profile example. Arrington left AOL after critics raised concerns about potential conflicts of interests in his plans to run the fund and continue to write for the site.


Yahoo's best hope for sustainable growth -- and AOL's, for that matter -- is to become either a private company or part of a larger public one. It will need to invest heavily in itself over the next few years to develop original content, which may not pay off as quickly as shareholders would like. The best hope for Yahoo was the 2008 Microsoft deal. Since time travel is not an option, the Blackstone and Bain deal is the next-best thing.


The buyout firms know the media sector, thanks in part to their 2008 deal to acquire the Weather Channel with NBC Universal. Yahoo can't afford to spurn this offer.


Disclosure: Jonathan Berr does not own shares of the aforementioned stocks. He is a former contract writer with AOL.


Related Articles


2Comments
Dec 2, 2011 7:17AM
avatar
I understand their is also another group considering yahoo. A group that comsists of KKR + others. Seems likely that yahoo will be broken up into parts that are profitable or not profitable, regardless of who buys it.
Dec 1, 2011 5:23PM
avatar
accept any offer or an offer which values yahoo correctly along with all of their foreign assets? ridiculous to suggest to "accept a buyout offer when it comes." i agree that yang's rejection of microsoft's offer was assinine and greedy. is $20 a proper offer or is it just better than silver lake's lowball offer. is the market valuating yahoo's assets correctly? i doubt it since no one knows what allipay is worth. yes they have to take an offer but a proper offer.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

116
116 rated 1
284
284 rated 2
461
461 rated 3
671
671 rated 4
628
628 rated 5
618
618 rated 6
615
615 rated 7
495
495 rated 8
347
347 rated 9
115
115 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
DYNDYNEGY Inc10
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.