- April 11th is the first deadline for initial bids of Yahoo's sale process.
- The bid is attracting well-capitalized firms that might drive the sale premium higher.
- This move and the Starboard move will likely bolster investor confidence in the stock.
Yahoo (NASDAQ:YHOO) advisers asked potential buyers of its core Web business and Asian assets to submit proposals for their bids. These assets under consideration are Yahoo's core Web business, or pieces of it and Yahoo's 15% stake in Alibaba Group Holding Ltd. or Yahoo Japan. Yahoo is reportedly facing interest from as many as 40 groups and the company has set April 11th as the deadline for any preliminary bids. It was reported that the bidders are being asked for details on their financing plans, their assumptions and conditions and approvals to be met should the deal go through.
These new developments at Yahoo makes the company attractive for so many reasons.
First, Yahoo's auction has the potential to attract credible and well-capitalized players who can drive the bid premium higher. This is important for shareholders because they can achieve higher returns on their investment. Companies like Microsoft (NASDAQ:MSFT) already have a long-standing relationship with Yahoo that they would like to preserve. But Verizon (NYSE:VZ) also has a strong reason to buy Yahoo.
Verizon Communication purchased all outstanding shares of AOL for $50/share in cash in June 2015. This means that Verizon would also benefit from having AOL, instead of Bing, to provide searches on Yahoo properties. Furthermore, if Google wanted to sabotage both Microsoft and Verizon's competitive moves, Google can also make a compelling offer for Yahoo. This strong pipeline of candidates makes the potential premiums on the sale of Yahoo more likely to be higher.
Second, Microsoft is likely to be aggressive in its bid for Yahoo and this can further help Yahoo in getting a better deal for its assets. Microsoft may not buy Yahoo but it wants to back anyone who will make the acquisition so that it can continue its Yahoo-Bing deal. After the failed acquisition in 2008, Microsoft pays Yahoo a percentage of Bing ads revenue delivered from Yahoo searches. Back in 2008, Microsoft made a $45 billion acquisition offer to Yahoo but the then CEO of Yahoo Jerry Yang rejected the offer saying that the bid "substantially undervalues Yahoo." The offer represented a 62% premium over Yahoo's then market capitalization. Microsoft tried to increase the bid to $50 billion three-months later but Yahoo rejected the offer again.
Third, Yahoo is unlikely to reject good offers now because, unlike 2008, Yahoo's management is currently under a lot of pressure to create shareholder value and everyone is watching them. After Yahoo decided to halt their plans to spin-off their Alibaba stake, investors have not been happy with management because Yahoo's proposed restructuring plans are taking more time than projected. Shareholders like the activist hedge fund Starboard Value took things a step-further by advocating for the removal of the entire Yahoo board. Starboard wants Yahoo to keep its stake in Alibaba and Yahoo Japan and sell Yahoo's core search and display advertising business.
Because of the mounting pressure on management to show results, any potential step to make a deal on one or all of its assets will greatly bolster investor confidence in Yahoo again. This confidence and renewed hope in the company's forward direction will act as a catalyst to the stocks upside momentum.
In conclusion, Starboard's potential strategy is to make management move quickly and hopefully find a potential buyer or buyers by June or July when Yahoo is expected to hold its annual shareholder meeting and vote on proxy proposals. Starboard Value wants to sweep out all of the ailing Web company's nine directors and replace them with its own during the Yahoo 2016 shareholder meeting. Consequently, management must deliver before the meeting to make a strong case of why the reshuffle should not happen.
The negative sentiments on Yahoo stock emanated from management's failure to take swift measures to create shareholder value using the myriad of assets under the company. Once the process starts showing fruits, Yahoo is positioned to bolster investor confidence in the stock price. These bullish sentiments would have enough momentum to drive Yahoo's stock price higher.