Will it be Steven Ballmer or Jack Ma who will eventually head Yahoo (YHOO)?
Jack Ma, the Chief Executive of Alibaba Group Holding, has openly admitted that he wants and intends to make a bid for Yahoo, while Microsoft CEO Steve Ballmar has been coy and keeping his cards close to his vest. Yahoo owns a 40% stake in the Chinese Internet company Alibaba.
Jack Ma has been telling anyone who cares to listen that he is looking for partners to make a bid for the struggling Yahoo. Ballmer, on the other hand, is being wooed by private-equity firm Silver Lake Partners to join its group, including one of its investors, Canada Pension Plan Investment Board, to organize a plan to buy Yahoo.
Ballmer is keeping mum, so far, on all the speculation about Yahoo. But back in 2008, Ballmer wasn't that shy when he launched an unsolicited $44.6 billion buyout bid for Yahoo. The stock was then trading at around $12 a share, vs. Microsoft's $33 offer. But then Yahoo co-founder Jerry Yang blocked Microsoft's hostile bid, which has sharply pulled down the stock since then.
But make no mistake, all signs point to Yahoo being acquired, before long. That's the reason why its stock has been steadily edging up, from $12 earlier this year to $16.2 on the closing of trading on Oct. 21. 2011.
Yahoo is trading based on its private market value, notes Jordan Rohan, analyst at investment firm Stifel Nicolaus, who rates the stock as a buy. "We think an outright sale (of Yahoo) is the most likely scenario (80% in our view)," he says. "We think the buyout value could be $20 a share."
The bottom line: What has been boosting the stock of late is the increasing speculation that it will be acquired. Rohan estimates that "there is an 80% chance of a buyout and 20% chance that Yahoo continues of its current operational trajectory."
He expects the price bid-range will be between $18 and $22 a share. If Yahoo isn't acquired, Rohan will still be bullish on the stock, with a 12-month price target of $18 "based on a probability-weighted sum of the parts analysis." And based on fundamentals, Rohan forecasts Yahoo will earn 83 cents a share in 2011 and 94 cents in 2012, up from 2010's 73 cents.
Although the stock has been edging higher in recent weeks, it has yet to recover from its steep decline since the company rejected Microsoft's bid in 2008. In late 2008, shares of Yahoo crashed to as low as $8.9o a share. Yang stepped down as CEO after the fiasco and hired Carol Bartz to succeed him. At the time, Bartz was chairman and president of design software company, Autodesk.
On Sept. 6, 2011, Bartz was unceremoniously fired by board Chairman Roy Bostock over the phone, ostensibly for her failure to turn the company around during her 30 months as Yahoo's chief. One of the world's largest providers of online content and services, Yahoo is still searching for a new CEO.
Enter the ravenous private-equity firms. The Wall Street Journal, on Oct. 20, 2011, reported that 9 private-equity firms have been considering a run at Yahoo, including Silver Lake Partners. And it also reported the next day on Jack Ma's repeated pronouncements that he was interested and looking for partners to join him to go after Yahoo. One of China's most outspoken entreprenuers, Ma claims that many private equity firms have talked to Alibaba about joining it in launching a takeover bid for Yahoo.
So analysts and and some Yahoo investors expect it will either be Alibaba or Microsoft who will end up aquiring Yahoo. Would Ballmer simply allow Yahoo to fall into the lap of another company after it had pursued to buy it in 2008 for $44.6 billion?
That's hard to imagine, considering that Microsoft, on its own, has the financial resources to buy Yahoo, whose current market capitalization is $20 billion, less than half of Microsoft's cash hoard -- and way below Microsoft's gigantic market cap of $228.47 billion.
And let's not forget that a year after Yahoo rejected Microsoft's $33-a-share bid in 2008, the two companies had signed a 10-year pact in which Microsoft agreed to provide core search technology to Yahoo's sites, with Yahoo getting 88% of the search revenues. Among Yahoo's other assets are its investments in Asia valued at $20.4 billion, including $6.4 billion in Yahoo Japan, and $14 billion in Alibaba. Yahoo also has a cash hoard of $2.5 billion -- and no debt. Some analysts puts the value of Yahoo alone, excluding those Asian assets, at $10 a share.
It seems unlikely that Ballmer would turn his back on those growing assets. So some invetsment pros are betting on Microsoft to come back to the table with a new offer to buy Yahoo -- at a big discount from what it was willing to pay in 2008. Microsoft could easily outbid any other suitors.
"Although Yahoo's core performance remains underwhelming, we believe the likelihood of a strategic event (translation: buyout deal) justifies the risk reward," says Ken Sena, analyst at Evercore Partners, who rates the stock as "overweight" with a price target of $18 a share. None of the 30 Wall Street analysts who follow Yahoo recommends dumping the stock. Twelve of them rate Yahoo as a buy and 18 recommend holding the stock.
Standard & Poor's analyst Scott Kessler, on Oct. 19, 2011, upgraded his rating on Yahoo, to a strong buy from a buy, based in part on a revised sum-of-the-parts analysis. He also lifted his price target to $20 a share from $17. Hundreds of millions of users visit Yahoo's online properties, he notes "making it the most popular Intenet destination."
Says Kessler: The more potential parties interested in Yahoo, the better for Yahoo's stock - and its shareholders.
