Mark Twain famously quipped,”The reports of my death are greatly exaggerated." Executives at Yahoo (YHOO) may be ready to say the same thing about their company. No matter how much time passes, takeover rumors just won’t seem to go away; even ideas conceived way outside the box seem fair game.
Last month it was Velocity Interactive dubbed the suitor. The VC firm’s internal fundraising efforts were incorrectly re-imagined as a search for financiers to back a Yahoo buyout. This month, according to a new Tech Crunch report, it’s a group of unnamed Silicon Valley executives and bankers circling.
Tech Crunch’s sources “with knowledge of the proposed transaction” say the proposal being crafted would value Yahoo at about $20 billion, or a paltry 20% premium to the company’s currently depressed stock price.
The money for the buyout would be raised in an independent debt financing wherein Microsoft (NASDAQ:MSFT) would loan the buyout group a substantial portion of the necessary funds. The group would then use that capital to buy the company. In a simultaneous transaction, the Tech Crunch sources continue, the buyout group would sell the newly acquired Yahoo’s search business back to Microsoft, giving the company in Redmond the core asset it wants without the overhead of a broader deal.
It’s an interesting concept but sources say Microsoft isn’t in talks over this proposal.
Also, the key thing here, which Tech Crunch reported, but has been lost in some of the reports that have followed: this “buyout group” is investigating possibilities and planning a proposal. They’re interested in talking to Microsoft and then talking to Yahoo. There’s no money on the table. There is no active dialogue. This is ideas in motion. It’s somebody’s back-of-napkin doodle.
I could pick up the phone tomorrow and call the New York Governor's office. That doesn’t mean they’d take my call and it doesn’t mean I’m actually considering a run for the state’s vacant Senate seat. Talk is a long leap away from being equivalent to an actual transaction in the making. This latest bit is people throwing something at a wall and seeing what sticks. A buyout at these prices, or with this structure…it isn’t going to stick.
A few quick points:
•Capital is not readily available from banks in this economy. For this deal to have a chance at happening, as Tech Crunch reported, the proposal described first needs Microsoft to act as lender.
As of September 30th, Microsoft had $9 billion in cash and cash equivalents. That number jumps to about $24b if you total up Cash, Short Term Investments and Other Current Assets. How much of that would Microsoft wager in this economy to end up with Yahoo’s search business and some interest income? $3b? $4b? $5b? Is that really enough to make something happen?
•Assuming money were available, Yahoo’s board and shareholders would still have to approve whatever offer comes in. The board turned down a sale price of more than double this rumored offer months ago. Even though circumstances have since changed dramatically, is the company really so desperate to sell that they’d take a fire-sale price in a down market?
•Yahoo’s CEO slot is still empty. Would the company and its board actually entertain and negotiate a sale of the company with the seat vacant? Hard to believe. That wouldn’t be a vote of confidence in the company’s ability to continue to operate independently and could undermine Yahoo’s negotiating position. It’s tantamount to saying “we have to sell.” Would they do that?
•Carl Icahn doubled down on his Yahoo stock position in late November. Whether that was merely cost averaging to adjust his basis, or a show of support, it’s demonstration he’s still deeply committed to Yahoo as an investment. His initial entry price is also likely above $20 a share. Would Icahn really sell out for a loss? That’s hard to believe. Though Icahn has made short term investments many times, he’s had no qualms staying in a battle for the long haul. He’s been a Blockbuster (BBI) shareholder since 2004 and spent four years fighting to split RJR Nabisco into two. Would other key institutional investors embrace a deal even if Icahn didn’t?
This seems like another one of “those stories.” It grabs a few headlines…generates a lot of buzz…and then dies out with a whimper leaving a slight pause before the next rumor rises up to replace it.