Kevin Dowd April 22, 2016
Does anyone actually want to buy Yahoo? Earlier reports of up to 40 potential buyers circling the pioneering internet business proved optimistic. Extremely optimistic. Instead, a core group of four candidates seems to have emerged after this Monday’s deadline for the submission of initial bids.
With the caveat that new proposals could always emerge, let’s take a brief look at the current suitors and their likelihood of consummating a deal.
TPG is believed to be the lone private equity firm mounting a serious solo bid for the business, which is made up of a stake in Alibaba believed to be worth about $32 billion and core Yahoo assets (including search) worth up to $8 billion. By virtue of its size, it seems unlikely TPG could adequately secure financing to close such a massive deal, so an offer for the company’s core assets seems much more likely. According to reports, the firm is most interested in acquiring Yahoo’s advertising technology. Still, even a deal for a slice of Yahoo seems a longshot. TPG’s portfolio lacks companies that offer obvious synergies with Yahoo, which makes it more difficult for the firm to justify paying a premium.
Two other PE heavyweights, Bain Capital and Vista Equity Partners, are pursuing Yahoo in conjunction with a coterie of the company’s former executives. The combination of multiple firms (including Vista’s tech focus and cost-cutting expertise) and individuals very familiar with Yahoo’s operations make this possibility more realistic. But ponying up around $40 billion to acquire the full business may still be beyond their scope.
Then there’s YP Holdings (colloquially known as Yellow Pages), an advertising business backed by Cerberus Capital Management and AT&T. Valued at $1 billion to $1.5 billion, it’s safe to say YP won’t be paying $40 billion for the entirety of Yahoo. More likely, according to reports, is that the company merges with a spun-off subsidiary of Yahoo in a Reverse Morris Trust, a smaller deal that could consolidate YP’s place in the advertising sphere. If you’re keeping score, that makes us 0-for-3 on potential buyers who could actually acquire the whole of Yahoo’s business.
That leaves Verizon, believed to be the sole strategic acquirer bidding for Yahoo absent any PE backing—and, on paper, the most realistic option to acquire the onetime internet kingpin. As a strategic and a publicly traded company, Verizon can cut a larger check than many of its PE competitors. After a $4.4 billion acquisition of AOL last year, Verizon has experience operating an internet company. And between AOL and its own wireless and mobile business, Verizon also boasts the sorts of synergies that make an acquisition of Yahoo appealing; by combining and streamlining aspects of the different businesses, it could create more value than other bidders.
Instead of the dozens of suitors initially reported, Yahoo finds itself with a relative dearth of options—a sign of how low the consensus opinion of the company has sunk. For now, expect a strategic like Verizon to emerge as the frontrunner rather than the numerous PE firms to throw their hats into the ring.