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Yahoo! Inc.’s (NASDAQ:YHOO) Core Assets Are No Longer a Juicy Prospect

Yahoo! Inc (YHOO)

Yahoo! Inc.  seemed to have overvalued its core business assets if the bidding reports coming in are anything substantial. Prospective bidders have lowered their offers to a ceiling that is less than what was initially estimated to be its rightful price.

Yahoo! Inc (YHOO)

The interested bidders, who include Verizon Communications Inc. and others, will likely submit a bid of $2 billion to $3 billion. The price is somewhat lower than April’s price estimate of $4 billion to $8 billion. Verizon is widely touted as the one likely to clinch the deal in a crowded field that includes private-equity firms.

The lower bid prices doesn’t mean things are likely to stay that way. Some bids could still float above the $2 billion-$3 billion ceiling. It is also in the bidder’s interest not to show their enthusiasm in the auction lest the price ceiling starts shooting up. It is also possible that not every buyer wants to purchase all of the core business assets. Proposals are also expected to be structured differently.

The deadline for the next round of bids is set to be the first week of June. It remains unclear whether this is the last round or just one of the few more to follow.

The bids came lower after interested buyers attended sales presentations organized by Yahoo CEO Marissa Mayer at the company headquarters in Sunnyvale, Calif. The bidders also got to hear about disclosures of information that showed the company’s precarious prospects.

Buffett Interest in Being Involved in Yahoo

Apart from Verizon Communications, other interested bidders include Quicken Loans founder Dan Gilbert, who is backed by billionaire businessman Warren Buffett. A consortium consisting of Vista Equity Partners, Bain Capital and former Yahoo chief Ross Levinsohn is also eyeing the unit. Buyout firm TPG Capital is also in contention.

It is hard to estimate how much Yahoo’s core web division is worth partly due to the fact that a huge portion of Yahoo’s nearly $35bn market capitalization stems from its shares in Yahoo Japan and  Alibaba Group Holding Ltd. Yahoo Japan is a joint venture of Japanese internet company Softbank and Yahoo that was formed in 1996. Yahoo’s stake in Alibaba was estimated to be worth $30bn in April.

Last month, analysts estimated Yahoo’s core business to be worth $4 billion to $5 billion. New York Post valued the patents and intellectual property to be worth $3 billion to $4 billion.

In April, Yahoo revealed the extent of the woes it faces after it announced a drop in its first-quarter revenue. The revenue fell 18 percent to $859.4 million, minus commissions due to search partners. The results marked the first time the once-massive internet giant registered revenue of less than $1 billion since Ms. Mayer joined four years ago.

Growth Engine Has Apparently Slowed Down

The business unit of Yahoo that Ms. Mayer had pegged as its new growth engine has slowed down fast. Revenue earned from “mavens”, an internal Yahoo term for mobile, video, native and social advertisements –grew 6.8 percent year-on-year to $390 million. The figure lags previous growth rates by a huge margin-26 percent for fourth quarter, 44 percent for the third and 60 percent for the second one.

Potential bidders have recently been granted access to Yahoo’s “data room” to view secret information about its financial prospects and performance. Ms. Mayer sought to allay the bidders’  fear by saying the company is still in the midst of a reorganization.

It is widely expected that Yahoo could abandon its sale process and continue with its turnaround plan if bids fail to match its expectations.

Once the biggest consumer email provider in the world, Yahoo has lost much of its past glory due to relentless competition in digital ad market from Facebook Inc  and Alphabet Inc’s Google.

 

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