Yahoo! Inc.: What Happens if VZ Logs Out From Bid for YHOO?

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Yahoo! Inc. (YHOO) stock has surged about 40% from the low it set earlier this year, behind what the company claims is significant interest for various parts of its company.

Yahoo! Inc.: What Happens if VZ Doesn't Bid for YHOO?According to a report from Bloomberg, YHOO is beginning the tedious task of narrowing down bids for its core internet business, with there being more than 10 offers that range from $4 to $8 billion.

Therefore, it would appear that M&A will surround Yahoo during the foreseeable future, and that’s driving Yahoo stock higher. And while many companies have been noted as potential suitors, Verizon Communications Inc. (VZ) is at the epicenter of all talks related to YHOO, and is seen by most analysts as one of the few very serious companies in the bidding war.

However, given the turbulent ride that Yahoo stock has been on over the last year, I ask the question of what happens if Verizon does not buy Yahoo’s core business, and Yahoo remains as is.

What’s Going On With YHOO and VZ?

Just to be clear, YHOO has been very hush hush as it relates to the M&A rumors surrounding the company. Yes, it has stated that YHOO is for sale, but all of the rumors that involve dollar amounts are coming from media sources, like Reuters and Bloomberg. While most are reliable sources, one must conclude that the intel is likely coming straight from YHOO, who might very well be trying to drive interest.

Nevertheless, while investors are placing their bets, you must never forget the complete dysfunction and failures that have also surrounded Yahoo during the Marissa Mayer era to create shareholder value via the divestment of assets.

This is a company that wasted tens of millions, or maybe more, over a two-year span on the failed spinoff attempt of the 380 million plus shares of Alibaba Group Holding Ltd. (BABA) it owns.

The company got scared off by the possibility that it might have to pay taxes after the IRS seemingly changed rules to ensure that Yahoo would be held accountable for its tax bill. What’s frustrating is that Yahoo had a very good shot to win this battle with the IRS, and was well aware of the IRS’s stance for nearly a year before deciding to back out.

As a result, YHOO lost shareholder trust, and to this day there is no clear-cut plan in place. Yes, Yahoo’s sum of parts make it very valuable. However, that value is only unlocked when and if a major move is made, presumably involving Verizon.

What Happens if Verizon Is Unwilling to Pay?

While VZ and YHOO’s core business seems like a perfect fit given the former’s acquisition of AOL, we can’t discount the mistake-prone behavior of Yahoo’s decision makers. From Tumblr to Alibaba, Yahoo’s management has been one public mistake after another.

With that said, if Yahoo holds out for more than Verizon is willing to pay, or if the executive team is not satisfied with the compensation packages that such a buyout creates, it is very possible that Verizon backs out and Yahoo heads back to the drawing board.

Furthermore, don’t discount the possibility of this happening, and if it does, all of the gains in Yahoo stock during the last few months would most certainly be wiped out.

If Yahoo is unsuccessful in obtaining a bid and selling off its pieces in a timely manner, investors will quickly lose patience. Keep in mind that frustration with Yahoo’s executive team and their failures is what pushed YHOO stock down from a peak of $52 in late 2014 to a low of $26 earlier this year.

So while I admit that a dream scenario for Yahoo bulls, that Verizon buys YHOO core and Alibaba or Softbank (SFTBY) buys back Yahoo’s BABA and Yahoo! Japan stakes, is very possible, the key takeaway is that Mayer & Co. just don’t have much wiggle room with Yahoo stock owners to procrastinate or ultimately fail to get this deal done.

If it falls through or takes longer than shareholders expect, or if Yahoo goes back to the drawing board entirely, it could get ugly real quick for Yahoo stock.

In other words, it may be wise to take some profits.

As of this writing, Brian Nichols owns none of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/yahoo-stock-verizon-vz-yhoo/.

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