Published April 19, 2016
By Jim Tompkins
CEO, Tompkins International
UPDATE – APRIL 19, 2016
Due to the lack of Yahoo cooperation with potential bidders and the lack of available information about Yahoo many companies are running from the Yahoo Yard Sale. The bidders appear to have a lack in confidence in the information that is available and are frustrated by their limited access to obtain answers to questions to gain confidence. If this is a battle between Yahoo management, members of the Yahoo board, Starboard Value and/or the various advisors to the Yahoo Yard Sale is not clear. But, what is clear is, at this point, is the number of bidders is far less than the 40 anticipated last week.In addition, all of the interesting players (Alibaba, Softbank, Facebook, Google, Microsoft) seem to have stepped back from participating in building upon the Yahoo eCommerce assets and who remains at the Yard Sale are firms interested in the Yahoo advertising business (The Daily Mail),the Yahoo news and media business (Verizon) and private equity firms. So, what I anticipated being a huge eCommerce play, could become a few spinoffs and the continuation of the Yahoo saga.
On April 11, 2016 many of the most prominent global companies will begin the pursuit of buying all or portions of Yahoo. The Yahoo merger and acquisition advisors have asked 40 firms to submit preliminary bids due April 11th describing what assets they would like to buy and at what price.
The battle for Yahoo will be the most interesting merger and acquisition story of all time. I believe this to be true because:
- Background of the participants
- Motivations of the participants
- The current status of Yahoo
BACKGROUND OF THE PARTICIPANTS
The players included in Figure 1 are obviously very significant players, along with 35 more who are in the hunt.
Consider the 10 relationships that begin to tell the background story of this merger and acquisition pursuit:
- Link A: Marissa Mayer became the 20th employee hired at Google in 1999. She was promoted, becoming the Vice President of Google Product Search. In 2012 she moved on to become the President and CEO of Yahoo.
- Link B: Sheryl Sandberg joined Google in 2001 as the Vice President of Global Online Sales and Operations. She left in 2008 to become the COO of Facebook.
- Link C: Nikesh Arora joined Google in 2004 as the Senior Vice President and Chief Business Officer. He left in 2014 to become the President and COO of Softbank.
- Link D: Softbank is the largest stock holder of Yahoo Japan.
- Link E: Softbank owns an even larger stake in Alibaba and frequently co-invests with Alibaba.
- Link F: Jerry Yang, Co-Founder of Yahoo, led an early Yahoo investment in Alibaba. Today a major portion of Yahoo’s value comes from their investment in Alibaba stock.
- Link G: In 2006 Yahoo tried to buy Facebook as did Google, Microsoft, and others.
- Link H: Microsoft was an early investor in Facebook. Microsoft became Facebook’s first advertising partner.
- Link I: Microsoft has tried to buy Yahoo several times, getting the most press for their $44 billion offer in 2008.
- Link J: In 2015 Alibaba and Microsoft made strange bedfellows as they worked together to fight a very important problem to both firms: piracy.
In addition, companies being mentioned as potential suitors for Yahoo include major players, all of whom have some interesting history with Yahoo: Apple, AT&T, Comcast, IAC/InerActive, KK&R, Starboard Value, Time, TPG, Verizon, Vista Equity, Walt Disney, and more than 20 others.
MOTIVATIONS OF THE PARTICIPANTS
The motivations of the five firms in Figure 1 include:
- Softbank and Alibaba: obtain Yahoo’s core business at a very favorable price due to stock ownership by Yahoo in Yahoo Japan and Alibaba
- Google and Microsoft: obtain Yahoo’s search business plus the Yahoo core business
- Facebook: Facebook’s WhatsApp can help Yahoo’s retail business grow just as Tencent’s WeChat business helped JD.com’s retail business grow, plus the Yahoo core business
Mentioned in all three of the above points is Yahoo’s core business. Why is this significant? Well, approximately 1 billion people turn to Yahoo’s core business every month and 60% of this is mobile.
The other over 30 companies considering a Yahoo merger and acquisition play, the reasons vary. It can be argued how the lack of focus has hurt Yahoo, but it is clear that at the heart of Yahoo there are very valuable advertising revenues, undervalued assets, and a huge audience.
Yahoo’s position of selling off the company began last fall when the IRS rejected the Yahoo tax-free request on the spinoff of Alibaba stock. Since then Yahoo has been under siege. Consider the following:
- December 2015 – Starboard Value pressured Yahoo to sell their core businesses.
- January 2016 – Yahoo began cost cutting activities, closing offices in Mexico and Argentina.
- February 2016 – Yahoo reported $4.4 billion in losses during the 4th Further, cost cutting measures took place including, elimination of 15% of the workforce, selling patents, selling real estate, and closing additional offices. The businesses that closed included Yahoo Games, Yahoo TV, Yahoo Food, and Yahoo Labs. Then the Board began looking at selling Yahoo’s core businesses.
- March 2016 – Starboard Value, who has been successful at replacing entire boards, presented a proposal for a new Yahoo Board. Starboard Value raised questions about the sincerity of the standing Yahoo Board to sell its core businesses.
- April 2016 – The process of evaluating the sale of core businesses began.
It will be very interesting to watch this deal unfold over the next year. A deal is anticipated to take place this summer. Watching how the businesses unfold will be amazing. I anticipate the outcome of these events to have major impacts on eCommerce in the United States and crossborder. It will also create major transformations in supply chain logistics.