- Microsoft has said that it is willing to give financial backing to the company that buys Yahoo.
- Microsoft's move hardly comes as a surprise given its search engine partnership with Yahoo.
- Yahoo's sale now appears more likely than not to happen.
Many Yahoo (NASDAQ:YHOO) investors still consider the company’s efforts to sell itself a farce, and they can be forgiven considering Yahoo’s past record on this issue. Many investors attribute the slow process of a sale to antipathy by CEO Marissa Mayer whom they see as favoring her own turnaround plans for the company. Activist investor Starboard is one such investor and has followed through with its threat to launch a proxy battle to oust Yahoo Inc's board by nominating its own board.
And it’s increasingly looking like events might actually force Yahoo’s hand in the matter and leave it with little choice than to make good its promise to pursue a sale. Microsoft (NASDAQ:MSFT) has now just made it harder for Yahoo to renege on a sale by promising to offer significant financing for the company that buys Yahoo. Microsoft has reportedly been meeting with private equity firms that are considering launching bids for Yahoo by promising backing up such a bid with as much as $1B.
Microsoft’s interest in the matter hardly comes as a surprise to anyone, considering the company’s long-standing ties with Yahoo. In one of my past articles, I had listed Microsoft as a strong candidate in Yahoo’s buyout. Microsoft has an ongoing search deal with Yahoo that dates back to 2010. The search engine partnership allows Bing Search to act as the default search engine on Yahoo. Microsoft definitely wants to ensure that whoever buys Yahoo becomes a good partner for the company.
I had argued in the article that although Microsoft had formally made a bid for Yahoo back in 2008, it was not very likely that the company would place a direct bid for the company this time around. Microsoft’s M&A activity under Satya Nadella has been spotty at best, with the company’s $2.5B acquisition of Minecraft maker Mojang being the biggest under the CEO.
Yahoo is reportedly looking for as much as $10B for its core business and has even set an April 11 deadline for bids for its core business. Microsoft could actually easily buy Yahoo if it set its mind on it. The company has close to $100B in cash though much of it is stashed overseas. In any case, Microsoft had made a bid for Yahoo eight years ago at $31/share, or $45B, though Ballmer is frequently accused of not making the best use of investor resources.
By buying Yahoo, Microsoft could double its search engine market share almost overnight and would be in a better position to counter Alphabet Inc's (NASDAQ:GOOG) dominance. Bing has lately become profitable for Microsoft after years of posting losses. Perhaps the company could squeeze even more profits from the search engine if it manages to integrate it with Yahoo Search.
Analysts estimate that Yahoo could net another $1B-$3B in sale of non-core assets including patents, land, and other company property. Many analysts, however, consider Yahoo’s asking price for its core business too ambitious and see the business fetching $6B-$8B. That would still be double the $3B-$4B that many analysts had assigned to the business just a couple of months ago.
Meanwhile, not everyone thinks that Yahoo is dragging its feet in the sale process, with CNBC saying the process is in the middle of the first round.
Ultimately, Microsoft’s involvement in Yahoo’s sale might go a long way in accelerating the process. Although no bids have officially been made for Yahoo, there does not seem to be shortage of takers including Verizon (NYSE:VZ), AT&T (NYSE:T) and Comcast -A (NASDAQ:CMCSA), as well as private equity firms such as Vista Equity Partners, KKR, Advent International, TPG, and others. That said, Yahoo’s sale process is highly likely to sail through.