by Jonathan Berr | November 4, 2011 9:16 am
Yahoo (NASDAQ:YHOO) co-founder and former CEO Jerry Yang must be daydreaming if he thinks any private equity firm will help him rescue the Internet portal under the scenario outlined in the press.
Yang wants to have his cake and eat it too by maintaining control of the company he brought to its knees through various acts of incompetence, including turning down a $44.6 billion offer from Microsoft in 2009. In the real world, CEOs who wrecked their companies are not given a second chance to make things right. Unfortunately for shareholders, that’s what Yang is proposing to do.
As described by The Wall Street Journal, Yang’s plan calls for a big investor to take a 20% stake in the Sunnyvale, Calif.-based company in exchange for “an infusion of equity and bank debt, which would recapitalize Yahoo’s balance sheet.” This interest, combined with the 10% owned by Yang and his fellow co-founder David Filo, effectively would control the company. It would increase to as high as 45% after a stock buyback. Flush with cash, Yahoo could pay a dividend to shareholders — the ones that are brave (or foolish) enough to stick around — though it seems unclear whether that would happen.
It strains credulity to think that any private equity player would want to give Yahoo a lifeline under the plan the Journal lays out. First of all, where is the big payoff? Earnings per share in the current quarter are expected to be 24 cents a share — exactly where they were a year ago. Sales are expected to be little changed in the quarter and down 3.9% for the year. This is more of the same subpar performance that Wall Street has grown to expect. Revenue growth over five years has been a measly 3.76%. During that same time period, YHOO shares have plunged more than 40%.
For the Yang plan to have a snowball’s chance of working, Yahoo would need a strong, independent CEO. Yahoo has lacked a permanent CEO since Carol Bartz was fired in September. No sane executive would want the job given Yahoo’s financial predicament. He or she also would need assurances from Yang that he wouldn’t meddle in the efforts to turn the company around. That’s a promise he probably couldn’t keep.
Finally, Yahoo is far from a hopeless case. The company can turn itself around, but it needs to act fast. Kara Swisher at All Things Digital dubbed the company “the Hamlet of the Internet” for its tendency to take forever to make a decision. A clean, simple solution to the company’s problems might be in the works. Swisher reports that Yahoo is close to a deal to sell Yahoo Japan.
“Sources close to the situation said that the deal — as has been reported — is the closest to a deal compared to any other that Yahoo is contemplating,” she writes.
If that happens, it would be great news, but Yahoo is a long way from being turned around.
As of this writing, Jonathan Berr did not own a position in any of the aforementioned stocks. Follow him on Twitter at @jdberr.
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