Yahoo's Hidden Assets and the Potential for a Lucrative Deal

Strategic Insights -

Yahoo's financial struggles and the speculation surrounding potential buyers have led some investors to overlook the company's substantial hidden assets. According to Larry Haverty, portfolio manager at GAMCO, Yahoo's ownership of 29% of the privately held Alibaba company could be worth as much as $12 billion, significantly increasing the value of Yahoo's current businesses. Haverty estimates that Yahoo's search and display businesses could be valued at less than four times cash flow, the lowest multiple of any company in his portfolio of 130 companies. He also notes that the Chinese search business, similar to PayPal, is difficult to value but could be worth between $2 billion and $12 billion.

Key Takeaways:

  • Yahoo's hidden assets, primarily Alibaba, could be worth as much as $12 billion, significantly increasing the value of the company.
  • Yahoo's current businesses, search and display, are valued at less than four times cash flow, the lowest multiple among 130 companies in Haverty's portfolio.
  • Haverty believes the Chinese search business could be worth between $2 billion and $12 billion, making it difficult to estimate its value.
  • Haverty predicts Microsoft as the most likely buyer of Yahoo, citing the company's existing partnership with Yahoo on a joint search venture and Steve Ballmer's available funds.
  • Carol Bartz, Yahoo's CEO, was hired to create a competitor to Google, but Haverty is skeptical about the company's leadership and direction.
  • Shareholders have lost value due to the actions of the directors and management, leading Haverty to advocate for a change in leadership.

Statistics:

  • Yahoo's ownership stake in Alibaba could be worth as much as $12 billion.
  • Yahoo's search and display businesses are valued at less than four times cash flow.
  • Haverty's portfolio includes 130 companies, and Yahoo's cash flow multiple is the lowest among them.
  • Alibaba's Chinese search business is valued between $2 billion and $12 billion.
  • Microsoft has north of $25 billion available for a potential Yahoo acquisition.

Sources:

  • Bloomberg Transcript: Erik Schatzker, host, Bloomberg News; Larry Haverty, portfolio manager, GAMCO; and Deirdre Bolton, host, Bloomberg News.