Two years after Microsoft tried to acquire Yahoo! for $33/share and the company lost half its market value, AOL and Silver Lake have separately lined up financial advisers to explore options for the company. AOL is also exploring a scenario where Yahoo!’s Asian assets are spun off and the capital is returned to shareholders before the acquisition. AOL has been extremely proactive in buying companies over the past two months, purchasing 5min Ltd., an Internet content provider and TechCrunch, a popular technology blog.
Bloomberg announced today that KKR is also interested in helping finance the transaction. Silver Lake Partners and Blackstone are currently in buyout talks. The sponsors are interested in Yahoo!’s 40% stake in Alibaba, a growing Chinese online business. Yahoo! currently employs about 13,600 people and had revenues of about $1.6 billion last quarter. Shares in the company rose 9.5% on the rumors today, and the firm’s management team may have hired Goldman Sachs as a takeover defense advisor to ward off bids.
According to the WSJ, analysts say that a Yahoo!-AOL merger could create a strong competitor in the display ads market, which is estimated to be $20 billion this year. This should be an interesting transaction, if it proceeds further, as Yahoo has a market capitalization of $21.85 billion and AOL has a market capitalization of $2.66 billion. However, analysts value Alibaba.com at between $15bn and $25bn, which means that Yahoo!’s 40% stake could be worth $10 billion. By selling those assets, Yahoo!’s market value would fall to about $11 billion, which would make the deal much more realistic.
On the other hand, Alexei Oreskovic and Sue Zeidler argue that the company will have hurdles even if it does get bought out. Yahoo! made many desperate attempts to grow revenue this year, such as its attempts to purchase foursquare and Groupon. According to one analyst, “making Yahoo! bigger or smaller will not accomplish anything.” Yahoo! is the 2nd most popular search engine behind Google, but it has failed to find growth in page views or new business. From a private equity investor’s point of view, Yahoo! may simply be attractive because of the steady cash flow it generates, if nothing else.
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