By Scott Tzu
The big headline over the last 24 hours for Yahoo (YHOO) has been that the sale of their core assets is not going as planned.
Numerous media outlets are reporting that the internet company is fetching bids in the $2 billion-$3 billion range for their core business versus an expected range of $4 billion-$8 billion. We had a feeling that this is how negotiations were going to go, and it is what caused us to write our last few articles on Yahoo, each one pointing out that nothing is finalized, until a deal is actually finalized.
Our last article was entitled "Yahoo: Nothing is Finalized Just Yet", and we encourage you to read it here. We concluded by saying,
There is nothing that has shown us a reason to expect any type of execution on the sale with any type of efficiency or benefits for shareholders. The core business is failing, the company's stake in Alibaba can be questioned loosely, and like everything else under her regime, we don't expect a shareholder friendly deal to get done with Mayer involved.
Once Yahoo officially started to have suitors bid for the company, it seemed to be a buying spree for the stock. The stock went from $26 up to about $36 on anticipation of the company selling its core assets, but this is looking more like a "buy the rumor, sell the news" type of event, as we think that run up represented the best chance for Yahoo stockholders to unload with a profit that we have seen in a while.
In our past few articles, we have not only questioned the incompetence of Yahoo's Board of Directors and executive suite, who have been unable to get anything done over the last two years, but we also question whether or not there may be a "wildcard" scenario in play that could prevent a sale of the core assets from even getting done. We predicted in several of our articles that a take under could potentially be what eventually happens to Yahoo. Based on this morning's news, it is looking like we are accurate.
The tell for us was how long this process has been going on, how long Yahoo has been talking about selling assets, and how little has actually gotten done. It's still reeks to us like something is rotten behind the scenes, and that there may be another shoe that eventually drops.
This morning's news comes after a long string of disappointments from Yahoo corporate executives. The fact that executives will be making money on this sale, if it happens, is ridiculous.
Sentiment got a small boost earlier this week when it was reported that Warren Buffett was actually teaming up with a friend to bid for Yahoo's assets. Whether or not he is the eventual winner of the auction remains to be seen, and we don't think him lending his name to this mess should give it any more credibility for the time being. Remember, the deal is not done until it gets done.
But it's important for investors to remember that even though these numbers are disappointing and it seems as though we are moving into the final round of bidding, anything is still possible. For analysts to go working a $2 billion-dollar or $3 billion dollar sum into their models, ignores that Yahoo still has many steps that it needs to take. The road from where we are now to a road where the sale of the business is consummated and closed is still likely many months away.
Yahoo seems to be finding brand-new ways to disappoint shareholders all the time. Whether it is the health of the core business deteriorating faster than normal, the new CEO's inability to get a turnaround done, the board's inability to hold the CEO accountable, and now the company's inability to sell itself when a sale of its core business is the last, dejected hope for an entity that has failed numerous turnarounds.
It is truly a sad story for Yahoo, and it could wind up being an even sadder story for shareholders. We don't want to hold Yahoo stock here.
We wanted to write again this morning to remind investors that with every piece of bad news we get, and every subpar update we get from Yahoo, the door is opening up for more and more things to go wrong. The bidding process has gone on now for several months, and potential suitors are likely getting into the deepest thralls of their due diligence. Already, we have seen the price of the sale knocked down by $1 billion to $6 billion.
What will be next?
We would not be buying Yahoo stock here in anticipation of a deal getting done, nor would we be buying just due to Buffett's involvement. While we wouldn't short Yahoo, in case things mysteriously pick up again, it is long exposure that we definitely don't see the need to have on at this point. It is likely that the company will get something done for a very disappointing price, as we have predicted in the past, but let this be a reminder that the once unthinkable scenarios of a sale not getting done or due diligence turning up something uninviting are still on the table.
Proceed with caution with Yahoo.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.