Should Yahoo Form a Stronghold with eBay?
According to investment-research firm Valuentum (run by former Morningstar director Brian Nelson), the best way to save Yahoo isn’t a spin-off, a reverse spin-off, or a core-business sell-off, but an eBay acquisition instead.
Recently, in an open letter that was sent to Yahoo CEO Marissa Mayer, Mr. Nelson devised a four-step plan of which would allow Yahoo to monetize some of its Alibaba shares and, in turn, use the proceeds to buy eBay, which he felt would assist Yahoo in doubling its intrinsic value by 2025.
The list of process includes issuing Class B shares of Yahoo for each share of Alibaba-owned. Placing 20% of the newly issued Class B shares at about $60 each, and hold the remaining 80% in Treasury, issuing them over time, which would give approximately $4.6 billion in proceeds, that would then be utilized to finance the purchase of a company that had undervalued assets thus generating a lot of cash, eBay, for instance. All of this, in turn, will fuel the growth of eBay by way of its existing high-traffic properties, and creating an e-commerce stronghold of which could leverage Yahoo’s core properties.
According to the letter, Nelson noted, “We believe they will augment Yahoo’s intrinsic value, position it favorably from a competitive standpoint, enhance its existing properties while facilitating a growth engine for innovation.”
Nelson stressed that the letter was sent in the spirit of idea generation and that Valuentum is an independent research firm, therefore, is held no stake in any company,and did not have any future plans to own any Yahoo shares. He added that being in that neutral position and having an unbiased view, in turn, made his opinion legitimate, stating,”We just wanted to offer up an alternative idea. This is something we’re not sure many people thought about.”
However, it appears as if Nelson is on to something. Since its spin-off from PayPal last year, eBay (visit the official ebay website for official contact information) has been trading quite low prices, particularly for a company that consistently generates, at least, $2 billion in free cash flow and with Yahoo receiving hundreds of millions of monthly visitors, the two bond and assist in growing eBay’s traffic as well. Though there are a tremendous amount of things to take into consideration, Nelson feels that it is the best long-term option Yahoo could, in fact, strive to pursue at this point, adding “There is a very large potential for value creation on a long-term basis.”
Recently, Yahoo officially put themselves up for sale, stating that it is open to consider any “qualified strategic proposals.” While at the same time, the company is narrowing its focus, and shutting down some of its older businesses, they will also be laying off approximately 15% of their workforce this year alone.
Perhaps the best option for Yahoo would be to form stronghold with the likes of eBay, as the two could strengthen each other by way of their current customer bases’ and thus generate traffic via each other. It is most certainly something of which should be analyzed and considered.