Shocker - Yahoo's Core Is Worth More Than $2-$3 Billion

| About: Altaba, Inc. (AABA)
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Summary

Yahoo's Auction: Round 1 Narrow down the bidding field. Round 2 WSJ says $2B-$3B bids CNBC later says $5B+ bids. Round 3 Push in all the chips.

Potential separate auctions for Yahoo's patent portfolio and real estate.

Yahoo's other non-core assets.

Yahoo's (YHOO) auction process to sell its core business has been an ongoing saga that is finally nearing an end. With its annual shareholder meeting scheduled as a live streaming event on June 30, 2016, management would love to deliver some results and details of the auction process that is expected to possibly run into early to mid July.

The first round of the auction, around the end of last April, featured articles mentioning usually around a dozen potential key bidders and an initial range of bids potentially being around $4B-$8B for Yahoo's core assets. The result of the first round was a narrowing of the field of potential suitors to set up the second round of bids after potential bidders had time for increased access to internal documents and management.

The second round of bidding started really getting interesting around the middle of May when the Wall Street Journal wrote an article citing sources saying that bids were expected to be in the $2B-$3B range with Verizon (NYSE:VZ) leading the way as the elephant in the room. I soon wrote an article after the Journal report explaining why it was most likely hogwash as the bids would almost certainly come in higher than the $2B-$3B the Journal was thinking. Now, as the second round of bids has officially come to a close, CNBC is reporting (article) that there are multiple bids above $5B with Verizon among the low bidders at $3.5B. Other potential parties putting in these $5B+ offers most likely include AT&T (NYSE:T), Dan Gilbert (the founder of Quicken Loans) backed by Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) and Warren Buffett, buyout firms like TPG Capital, and consortiums such as Bain Capital Private Equity and Vista Equity Partners. Whew, with so many big dogs in the room is it a surprise the bids are coming in higher as we enter the later stages of the process?

The third round of bidding is expected to start up here in the near future after second round bids have been analyzed. This round will likely feature a list of bidders willing to sign binding agreements for the assets that they are interested in as the auction process draws to a close. It will be very interesting to see if Verizon decides to make an over-the-top bid for $6B+ and purchase more of the core assets than it originally had intended to due to the enthusiasm of the other bidders. Here is an article explaining some of the reasons why Verizon is in a better position to outbid the other finalists at the end of the day.

Besides the main auction for the core assets of Yahoo, separate mini auction(s) for Yahoo's 3000ish patent portfolio (article) and/or perhaps its real estate holdings could happen if main auction bidders are not interested. These pieces could fetch $1B+ in total proceeds after the main auction concludes.

After the auction, Yahoo should still most likely control its 35.5% stake in Yahoo Japan along with its 15% stake in Chinese e-commerce giant Ali Baba (NYSE:BABA), which accounts for most of the company's current value. Finally, Yahoo will still have its $5B-$6B in cash and short term investments just lying around besides whatever comes in from the auction(s).

Conclusions:

As Yahoo's core business auction proceeds, bids from multiple players appear to be on the rise as the auction seems a much more robust process than many had originally thought. With the process nearing the final stages, surprises might be around the corner which could provide additional shareholder value and an increase in share price. I continue to be long Yahoo and have no plans to sell anytime soon.

Disclosure: I am/we are long YHOO.

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.