Yahoo! Inc.: Berkshire Isn’t the Ideal Suitor for YHOO

Maybe Verizon Communications Inc. (VZ) doesn’t have a clear and easy path to a purchase of Yahoo! Inc. (YHOO) after all. The buzz is that a consortium backed by Warren Buffett — yes, as in Berkshire Hathaway Inc. (BRK.A, BRK.B) — is interested in the internet giant’s core business.

Yahoo! Inc.: Berkshire Isn't the Ideal Suitor for YHOOA Quicken Loans founder is allegedly also part of the so-far-unconfirmed consortium.

It’s certainly good news to current owners of Yahoo stock; the more serious bidders there are, the higher the likely price of any sale.

And yet, to anyone who has a vested interest in the financial success of the consortium (and it’s still very unclear at this point if that actually includes BRK.B and BRK.A owners), the prospect of a group-led deal should be concerning.

Who Wants to Buy Yahoo?

If true, it’s a surprising change of heart for Warren Buffett, who usually eschews the idea of buying into modern technology stocks, preferring to stick to what he knows in industries he understands. Indeed, it was only last week that the Oracle of Omaha made a point of saying he wasn’t interested in buying tech stocks.

It’s likely that Buffet appreciates the fact that YHOO isn’t necessarily a technology company. It’s a media company and a marketing company that just happens to rely on a technology platform. It has not functioned all that well of late, but the foundation — not to mention the name — is still a solid one.

Warren Buffett and his fellow team members aren’t the only ones gunning for Yahoo’s core business though. Rumors suggest Verizon is the frontrunner, with private equity firm TPG and YP Holdings (the modern iteration of the Yellow Pages) running second and third.

Rival and partner Microsoft Corporation (MSFT) had reportedly been part of another consortium considering a purchase of Yahoo’s core assets, but no such consortium appears to remain in the running. On the other hand, inasmuch as a Buffett-led consortium is now mulling a deal even after the first round of bidding has passed, clearly it’s not too late for last-minute offers submitted before the June deadlines. Microsoft could slide back into the melee.

It’s such a prospect of a consortium purchase, however, that should concern BRK.A and BRK.B shareholders, to the extent Buffett’s massive fund would own a stake in YHOO.

Bad Idea

The idea of multiple owners leading a company seems savvy at first. Not only is the financial risk spread out, but the company has access to a vast array of knowledge and experience through all of its owners. It may have a little more political/social pull as well.

Yet, consortium-led companies also have a tendency to hit a common wall … not all the owners have the same agenda, and not all the owners embrace the same strategy. In this case, some of the likely owners of YHOO don’t have any real relevant experience.

In other words, the cliche “too many cooks spoil the broth” is an appropriate caution here.

There’s certainly no lack of examples of committee-led companies struggling due to a lack of focused leadership.

Case in point: Few may remember it now, as it fared so poorly it has been completely forgettable. But, in 2008, Time Warner Cable Inc (TWC), Comcast Corporation (CMCSA), Charter Communications, Inc. (CHTR) and a couple of other cable companies banded together to form an alliance called Canoe Ventures, aimed at improving television ad revenue. By 2012 Canoe had sunk, with competing interests from its co-owners cited as one of the key reasons for its failure.

Another example of failed multiowner leadership can be seen presently unfurling in the U.K. department store chain BHS is on the verge of collapse after a group of investors with little retail experience has been systematically destroying the company since taking the ownership helm in 2000.

None of this is to say a consortium-led acquisition of Yahoo stock can’t work. It is to say, however, enough of them fail due to conflicting ideas and a lack of relevant experience to make this premise at least a tad concerning to owners of BRK.A and BRK.B, if Buffet does end up allocating some of Berkshire Hathaway’s idle funds towards such a deal.

Never even mind the fact that one of the things that makes Berkshire Hathaway work so well is that Buffet and his fellow managers exercise complete control over its non-publicly-traded companies.

Bottom Line for YHOO

Perhaps Susan Decker, a former Yahoo executive, summed it up best by explaining late last month:

“I hope the next owner can do something to revitalize the spirit of the core things that made Yahoo very, very unique and create a distinction in consumers’ minds about why they love Yahoo still. It will be helpful if it is private or part of a much larger corporation to achieve that.”

The question is, can Buffett/Berkshire actually do that, as part of a group let alone on its own? Probably not, though for what it’s worth, Susan Decker currently sits on the Berkshire Hathaway Board of Directors. It’s not apt to be mere coincidence that the once-heir-apparent to the CEO job at Yahoo just happens to be offering guidance to its newest suitor.

In other words, this rumor is something to take seriously.

Whatever the case, owners of Yahoo stock may be thrilled, but such a deal wouldn’t do much for the value of BRK.A and BRK.B … and not just because Yahoo would only make up a small portion of the Berkshire portfolio.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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