Investing
After Bartz & Sum of the Parts: What's Yahoo! Worth? (YHOO, GOOG, MSFT, BX, AOL, KKR)
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Now that Yahoo! Inc. (NASDAQ: YHOO) has fired CEO Carol Bartz about as gracelessly as it could and set out on a strategic review of its business under interim CEO Tim Morse, it’s reasonable to wonder what the company is worth. Morse is the company’s CFO and if the CFO is in charge of the strategic review, odds favor either a sale of the entire company or a death by a thousand cuts.
Yahoo long ago gave up its search leadership to Google Inc. (NASDAQ: GOOG), and punctuated the loss by selling off its search business to Microsoft Corp. (NASDAQ: MSFT) at the end of 2009. That followed a rejection of a bid from Microsoft in 2008 to buy the company for about $45 billion. Yahoo’s market cap at yesterday’s close totaled just over $16 billion.
The company’s two most significant assets are a 43% stake in Chinese e-commerce company Alibaba and a 35% stake in Yahoo! Japan, a joint venture with Japan’s Softbank. In its 2010 10-K filing, Yahoo values its equity interest in Alibaba at about $2.3 billion and its stake in Yahoo! Japan at $1.7 billion. In early 2010 Alibaba offered to buy back Yahoo’s stake for about $10 billion, so Yahoo’s valuation of its stake in Alibaba is considerably lower than the market will bear.
In fact, in late 2010 both Silver Lake Partners and Blackstone Group (NYSE: BX) were rumored to be considering a joint bid with AOL Inc. (NYSE: AOL) for Yahoo. KKR & Co. (NYSE: KKR) was also reported to be interested in forming a consortium to make an offer for Yahoo. Any such deal would surely have led to the cutting up of Yahoo.
One analyst has recently suggested that Yahoo’s stake in Alibaba is worth $11.45/share of Yahoo’s stock. Yesterday’s share price closed at $12.91, which leaves just $1.46/share for everything else in the company. The Yahoo! Japan stake is worth more than that.
So either the analyst overestimated the value of Yahoo’s stake in Alibaba (not likely based on Alibaba’s own offer to buy the stake back) or Yahoo is worth more than $12.91/share. Which is it?
Yahoo, as a stand-alone company, is nearly worthless. But the parts have value, and the company’s new interim CEO will be doing a huge disservice to shareholders if he fails to encourage the bidding for pieces of the company.
Yahoo once pooh-poohed an offer of $45 billion. That won’t happen again, unless board chairman Roy Bostock gets another chance to do the wrong thing.
Paul Ausick
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