For owners of Yahoo stock it was the chance to sell out when Microsoft was
interested in paying $33 a share in 2008, particularly as the share price
has bumbled stubbornly along at less than half that level for most of the 21
months chief executive Carol Bartz has been in charge.
So it is little surprise that a new bout of deal speculation has pushed shares
in the online company up by a tenth in two days.
After all, Yahoo is cheap. Net cash plus stakes in Yahoo Japan and Chinese
search engine Alibaba.com are worth perhaps $13bn after tax, or about $9 per
share. Having Microsoft run the technology behind Yahoo’s search results,
and a cost-cutter in charge, means operating margins are forecast to jump
this year to 17 per cent from the 9 per cent made last year.
Assume, as UBS does, next year’s earnings from Yahoo’s remaining businesses
are in the region of 50 cents. At today’s $16 share price an acquirer is
looking at 14 times earnings for the largest online display advertising
company.
AOL
Dismiss some of the wilder rumours though. Merging Yahoo with AOL (market cap
$3bn) makes no sense, whatever the management skills of AOL head Tim
Armstrong. This would just be more cost-cutting, demoralisation and
distraction for temporary gains in profit while competitors Google, Facebook
and Microsoft busily stake out their place in the online ad market.
With the “if only” still lingering, a twenty-something share price would
likely be necessary to close a deal and there is no sign of $25bn-plus
private equity offers returning. Any buyer would also need a solution to the
still unanswered question: what exactly is the most popular US website
trying to be?
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