Yahoo! Yard Sale?
Blog Date: 11/11/11
Yahoo! is up for sale!!!! Several articles in both the Wall Street Journal as well as online have indicated that Yahoo! is selling itself. But the question on everyone’s lips is…. to whom?
According to the Wall Street Journal, Google has met with private equity firms about potentially helping them finance a deal to buy Yahoo!. Of course, many say this deal would get a good look over by the Fed, and that the Government will never allow such a deal to go through. This belief stems from the hunch that the Fed would be hesitant to allow this acquisition due to fears of Google monopolizing the industry. Microsoft as well as the China Internet giant Alibaba has also reportedly been in talks with private equity firms to purchase Yahoo!.
In regards to Alibaba’s possible purchasing of Yahoo!, Jack Ma, the CEO of the company, was quoted saying, “We are very interested in Yahoo. Our Alibaba group is important to Yahoo and Yahoo is important to us … All the serious buyers interested in Yahoo have talked to us.” According to Techrunch.com, Those buyers include: Alibaba Group investor Silver Lake Partners, Microsoft, Hellman & Friedman and Andreesen Horowitz.
Why Alibaba, you may ask? An article in the New York Times explains that Mr. Ma’s history with Yahoo! goes back several years, when Yahoo! acquired a 40 percent stake in Alibaba. The relationship between the two companies, however, have some “bad blood”, and Mr. Ma has said repeatedly that he wants to buy back Yahoo’s 40 percent stake in his company. By buying Yahoo!, he would get that stake back.
Chris Lau summarizes the whole situation very clearly in an article he wrote on October 26th which can be found on Seekingalpha.com. Lau states, “Yahoo’s business feels dated, and this showed up in its most recent results. With the exception of Yahoo Finance and original video content offered by Yahoo!, there is little reason to be excited about the company. Investors would disagree: Yahoo! is up 50.68%, closing most recently at $16.71 on speculation that Google Inc. is in the running for buying Yahoo!.” Lau further explains that Google’s only problem is that regulators will most likely not allow the internet giant to purchase Yahoo!, for Google has a 68% share of the market. With the acquisition of Yahoo!, Google’s share would increase to about 88%, says Lau. This induces fears of monopolization, lowering Google’s chances to acquire Yahoo!. Lastly, Lau closes his argument defending his opinion. He says, “Yahoo! shares already rallied to $16.71 [due to Google’s perspective purchase of Yahoo! which was mentioned earlier in this article], which is within its 2011 trading range price of between $16 and $18. Buying Yahoo! now is purely speculative, and any takeover discussion may easily fall apart. The European crisis will further remind investors that “risk-off” will reduce the trading premium already priced in Yahoo’s shares.”
In summation, I have to agree with Lau, for he proposed the most logical argument I’ve read so far. However, only time can tell what is in store for Yahoo!. We will have to wait and see how this company’s fate will unveil itself.