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YHOO: Size Matters

Phil Harvey
2/11/2008

11:17 AM -- Huge news this morning...

Yahoo says it won't accept Microsoft's current bid of $31 per share. The company's board says MSFT's bid "substantially undervalues Yahoo!" -- its brand, audience, ad platform, and investments in new technology, etc.

The deal's not dead, obviously. Yahoo may yet get a higher bid or find a different suitor altogether. But who? There's really not a company better position to take advantage of Yahoo's consumer reach and software assets than Microsoft.

The audience of Yahoo, to hear the company say it, is 22 times the size of The Wall Street Journal.

— Phil Harvey, Editor, Light Reading

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Scott Raynovich
Scott Raynovich
12/5/2012 | 3:48:01 PM
re: YHOO: Size Matters
Phil: Newsflash, the WSJ was acquired by News Corp. News Corp. has a market cap of $61B

But at any rate, I agree with your premise: There are not a whole lot of entities than can afford to battle MSFT for Yahoo.

The only thing that might immediately come to mind is, other than News Corp. is: Disney.

News Corp. could by Yahoo, if it wanted to. But why would they? They bought MySpace for $800M and turned it into a multi-billion property. And they just bought Dow Jones as a "fixer upper" to drive more content online. Why buy a $50B company when you seem to be doing well finding smaller deals that can result in faster growth.

Yahoo could have bought MySpace -- but didn't.

Hmm ... I see a theme here.

The answer is: Rather than competing for Yahoo -- you need to find the next MySpace. And it's no longer FaceBook, because it's already getting pricier than MySpace.

Ryan Lawler
Ryan Lawler
12/5/2012 | 3:48:00 PM
re: YHOO: Size Matters
I figure Disney probably learned its lesson from the Infoseek debacle earlier in the decade. The company only paid about $1.8 billion for that in 1999 or so. How much do you think the go.com properties are worth now?
Ryan Lawler
Ryan Lawler
12/5/2012 | 3:48:00 PM
re: YHOO: Size Matters
I figure Disney probably learned its lesson from the Infoseek debacle earlier in the decade. The company only paid about $1.8 billion for that in 1999 or so. How much do you think the go.com properties are worth now?
DCITDave
DCITDave
12/5/2012 | 3:48:00 PM
re: YHOO: Size Matters
Yes, true. News Corp. is definitely big enough. I just don't think, as you point out, that they have the ability to take advantage of all that Yahoo has built.

I could see Disney taking them out. In that space, Viacom, IAC, ClearChannel, and CBS are all too small.

Smaller companies that result in faster growth -- that's definitely a good formula.

Maybe Yahoo should focus on that for now.

ph
Scott Raynovich
Scott Raynovich
12/5/2012 | 3:47:59 PM
re: YHOO: Size Matters
It's all in the timing (and valuation), isn't it.


Scott Raynovich
Scott Raynovich
12/5/2012 | 3:47:58 PM
re: YHOO: Size Matters
>Smaller companies that result in faster growth -->that's definitely a good formula.
>Maybe Yahoo should focus on that for now.

Umm.. it's probably too late now. They have an offer in, the shareholders are pissed, and the stock has done nothing for two years.

So, I imagine if it came down to a proxy war, Microsoft might find a way to win. Why would the shareholders pass up, say, $40 a share?
Adi Kishore
Adi Kishore
12/5/2012 | 3:47:56 PM
re: YHOO: Size Matters
Yahoo has tremendous intrinsic value, given the size of their audience and so could work with a collection of non-media players too. AT&T already has a relationship with them and is looking to deepen its media capabilities. Similarly Nokia might find significant value in the company. But I'm not sure they would be better long term partners. From a returns perspective, it's hard to match Microsoft's long term value for a shareholder.
Scott Raynovich
Scott Raynovich
12/5/2012 | 3:47:53 PM
re: YHOO: Size Matters
T/YHOO -- now that is actually somewhat of an interesting idea.

Or what about Verizon and Yahoo?

Have you heard anybody actually talk about this being a real possiblity?
DCITDave
DCITDave
12/5/2012 | 3:47:52 PM
re: YHOO: Size Matters
re: "AT&T already has a relationship with them and is looking to deepen its media capabilities."

I think that's a solid idea, actually. The RBOCs seem to favor being media companies, while owning and generating as little original content as possible.

And that's what Yahoo does best. It aggregates, transcodes, distributes -- does everything but create.

ph
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