Verizon (VZ) has now put in a bid for Yahoo!'s (YHOO) web assets of $3 billion as part of a second round of action that is thought to have closed on Monday, according to a report from The Wall Street Journal.
The figure is significantly lower than many were expecting, but it's important to note that the reported bid does not include Yahoo!'s real estate nor its intellectual property. Those assets are thought to be worth at least $750 million and $1.5 billion respectively according to Bob Peck of SunTrust.
According to estimates that we have done, that figure for the real estate, which includes Yahoo!'s corporate headquarters in Sunnyvale, Calif. as well as a large plot of land in Santa Clara next to Levi's Stadium, could be too low by half as well.
Why is Verizon excluding these in their bid? I suspect what is going on is that Verizon is managing its profile with its investor base.
Verizon understands that some of its investors are not excited about its move to expand into web assets. First there was the purchase of AOL for $4.4 billion last year. Then there was the loud campaigning its executives have done for the past 6 months saying they are interested in buying Yahoo! And, a few weeks ago, they admitted that their Go90 streaming video service had underwhelmed compared to their prior expectations.
It seems to me that they are trying to telegraph that they are being a prudent bidder as part of this round -- especially since the press keeps referring to them as being the lead bidder for Yahoo!
It would surprise me if Verizon did not eventually bid for the Yahoo! patents. They already have built up a great war chest of IP and likely want more to use against Alphabet's (GOOGL) Google.
There will also be a third round of bidding account to the WSJ's report. That means Verizon can always increase its bid from $3 billion excluding real estate and IP to something else later if they want to. The final decision about who buys Yahoo is expected to be made in early July.
The real action for Yahoo!'s stock price will likely come in the last 6 months of 2016 after the core business web assets are sold off. That's likely when decisions will be made about Yahoo's stakes in its Asian assets, which are the source of most of its value.
We know that Softbank recently sold off almost $9 billion of its stake in Alibaba (BABA) . It's possible, then, that Softbank could use some of these proceeds to buy back the 35% stake in Yahoo! Japan that Yahoo! still owns, which is currently worth about $10.7 billion. That would leave the 384 million shares of Alibaba which Yahoo! still owns to dispose of.
Bob Peck of SunTrust believes that, even with generous discounts applied to these stakes to get a deal done, Yahoo!'s stock still trades to $42-a-share by the end of the year. In morning trading on Tuesday, Yahoo! shares were down 0.9% to $36.74.
Peck's $42 share price would not include any tax efficiencies either on these stakes. If those can be realized, and with Jeff Smith of Starboard on Yahoo!'s board now, there's more reason for optimism than before, so there could be further upside to Yahoo's shares.
There will likely be more noise in the next few days about who bid for Yahoo!'s web assets as part of the second round, and how much they offered. These data points are ultimately about as helpful as the ones from a few weeks ago related to the first round.
All that matters are the final round bids that come in early July and how Yahoo!'s Asian stakes are monetized in the coming months.
By: Eric Jackson (The Street).
Photo: Wall Street journal.
Review: Emerging Market Formulations &
Research Unit, FLAGSHIP RECORDS.
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