Yahoo Bids Could Seriously Underwhelm

Bids for Yahoo’s core assets were expected to come in at between US$2 billion and $3 billion, far below prior estimates that it could fetch $4 billion to $8 billion at auction, The Wall Street Journal reported last week.

Verizon, which remains the leading candidate for Yahoo’s assets, and other contenders met with CEO Marissa Mayer at the company’s Sunnyvale, California, headquarters, according to the report, which cited sources familiar with the matter.

What they heard and saw in financial documents not publicly reported apparently has led them to a more conservative posture.

Mental Chess

“What’s being played out is a dance between Yahoo and prospective bidders,” said Mike Jude, program manager at Stratecast/Frost & Sullivan.

“Yahoo wants to maximize the shareholder value by spinning off profitable pieces that could presumably stand on their own and continue to generate shareholder returns, but the more of these pieces it excludes from the core, the less the core is worth to bidders,” he told the E-Commerce Times.

If Yahoo wants a higher price, it might have to include more valuable assets in the core package, but that could hurt shareholders looking to maximize their returns, Jude added.

Facing the threat of a proxy fight by activist investor group Starboard Value, Yahoo earlier this year agreed toadd four independent directors to its board. What is not clear is how they may have influenced negotiations with potential suitors for the assets.

Among the assets in play — or out of reach — are Yahoo’s stake in Alibaba; Yahoo Japan, which was long the subject of spinoff discussions; Yahoo’s news business, which includes anchor Katie Couric and a well-respected financial and sports news operation; and Yahoo’s valuable advertising business, Jude noted.

The relatively low offers for Yahoo’s assets may have been influenced by what suitors heard about the future outlook, Charles King, principal analyst at Pund-IT, told the E-Commerce Times.

Video in Focus

In recent weeks, Yahoo appears to have been more aggressive in promoting new video and mobile upgrades. At its recent NewFront event, the company revealed plans for high-quality video across its four vertical content platforms of news, sports, finance and lifestyle.

Video advertising was one of the fastest-growing segments of the company’s business, up 64 percent in 2015 from the prior year, Chief Revenue Officer Lisa Utzschneider said earlier this month. Yahoo viewers were consuming 55 percent more video than a year ago and spending 85 percent more time with the content on average.

The next round of bids is scheduled for the first week of June, the Journal reported.

Other bidders are said to include TPG; Cavaliers owner and Quicken Loans founder Dan Gilbert, who reportedly is backed by billionaire Warren Buffett; and an investor group that includes Bain Capital, Vista Equity Partners and Ross Levinsohn, a former chief executive at Yahoo.

David Jones is a freelance writer based in Essex County, New Jersey. He has written for Reuters, Bloomberg, Crain's New York Business and The New York Times.

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