Yahoo!’s Alternative: Acquire Companies Like Mad

Based on media reports, Yahoo! (YHOO) has decided not to pursue talks about being acquired by Microsoft (MSFT), even though the premium could be in the $34 range (or more). Yahoo has been trading at about $28.

Because Yahoo! is growing so slowly, and may not have a revenue improvement above 10% this year, the question is what can it offer its investors as a standalone company. The easy answer is Panama, its new search-based advertising business. But, Google is the leader in that industry, and by a very large margin.Yahoo!’s earnings may be helped, but they are not going to go back to the kind of growth the company experience in 2003 and 2004.

Yahoo! may be able to acquire itself out of its mess. It would mean dilution for shareholders. Yahoo! does not have the cash on hand to make a number of large purchases. The company could also take on debt.

Yahoo! is also working with the limitation of a market cap that has been running at about $34 billion.

The internet portal already has a large franchise in online jobs. It could become the largest player in this market by buying Monster (MNST). The company would be unlikely to go for less than $8 billion. But, Monster does have over $1 billion in revenue and is very profitable.

Yahoo! also has a large online personals business. It could buy a couples matching business like eHarmony, or approach IAC/Interactive (IACI) about buying Match.com.

Yahoo! has a substantial business in music downloads. It could enhance the business by buying RealNetworks (RNWK) which would probably go for at least $2 billion.

And, Yahoo! Finance is a large business. It could make it larger and pick up exclusive content by picking up TheStreet.com (TSCM) or The Motley Fool. Expensive? Yes, TheStreet is probably worth $400 million.

Yahoo! would be adopting a model that has been especially successful in another industry as Cisco (CSCO) has made dozens of acquisitions to strengthen and extend its franchises. Cisco’s stock is up almost 55% over the last two year. Another tech company that has used acquisitions to its advantage is Oracle (ORCL). Its shares are up over 60% during the last 24 months.

Simply staying as it is would not appear to offer Yahoo! a very bright future. But, maybe it can buy itself out of its problems.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that the writes about.