Right on cue, Street analysts are weighing in on reports that Yahoo (YHOO) is the subject of takeover talks that could involve AOL (AOL), News Corp. (NWS) and various private equity firms. While they are intrigued about the possibilities, in general the analysts caution that the kind of complex deal being batted around would have to overcome considerable obstacles. They also say a deal would likely require a bid in the $23-$25 a share range to get Yahoo’s board interested in a deal.
Here’s a rundown on what some of the analysts are saying about the chatter:
- Piper Jaffray analyst Gene Munster is skeptical that a deal will happen, given the complex nature of the transactions described in the WSJ and other press reports. “In concept, we agree that there would be synergies between Yahoo! and AOL, but we believe the reality of the situation is that it would be easier for Yahoo to acquire AOL outright than for the reverse to happen with PE involvement,” he writes. “Regardless if a deal happens or not, we believe the sum of the parts value of YHOO is $20.” Munster adds that one big problem is that the contemplated deals are dependent on the company selling its Asian assets. He contends that “it would be difficult for Yahoo to get fair market value on these assets given the environment in which they would be divesting.”
- Jordan Rohan, Stifel: “While there are many things that have changed that make a potential Yahoo buyout more likely to happen today, there are a couple of big factors that make the potential buyout a low probability event, in our view,” he writes. “Those factors are the lack of availability of financing for a full $30 billion takeout, which would simplify the takeout process significantly, and the incentive that Yahoo management has to wait for a liquidity event at Taobao, which addresses the valuation gap. We remain neutral on Yahoo! and do not believe the current talks will result in a transaction, at least for now.”
- Aaron Kessler, ThinkEquity: “At Wednesday’s closing price of $15.25, we continue to believe that Yahoo is receiving very little if any value for its core business,” he writes. “The biggest positive for an acquisition would be a clear catalyst for shares (biggest investor concern is lack of a near-term catalyst), in our view. On the other hand, an acquisition today could undervalue both Yahoo’s turnaround and the Alibaba Group assets.” He keeps his $20 target, but thinks to get a deal done would likely require a bid in the $23-$25 a share range.
- Justin Post, Bank of America/Merrill Lynch: “With Yahoo Japan outsourcing search to Google, Yahoo has several assets that do not have a lot of synergies, and we think the sum of the parts is worth more than the whole,” he writes. “As a reminder, Yahoo owns 35% of Yahoo Japan and 40% of China�s Alibaba Group, which owns parts of Alibaba.com plus Taobao and Alipay (among other sites) and its Asian assets plus cash may contribute over 60% of its market capitalization. We think private equity could also do more with Yahoo costs than a public management team, especially in a merger scenario with AOL.”
- Brian Pitz, UBS: “Given the significant return potential of Alibaba as well as management�s belief that Yahoo is undervalued, we believe it is unlikely that Yahoo would sell out for less than $22-25/share,” he writes, adding “We have many unanswered questions, such as the tax implications of asset sales in Asia. There is also regulatory risk. We do believe this provides a floor for the stock in the near-term, and we will continue to monitor details as they emerge.”
YHOO is up 67 cents, or 4.4%, to $15.92, after trading as high as $16.76 earlier this morning, and more than $17 in pre-market trading.
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