Bain and TPG join suitors for Yahoo unit
Bain and TPG are among several private equity firms weighing potential approaches for Yahoo’s core internet business, people familiar with the matter said, after the Silicon Valley group announced it was exploring options for the unit.
Ken Goldman, Yahoo’s chief financial officer, said on Tuesday that “a number of private equity firms” had expressed interest but none had yet made a formal offer. Two people familiar with the matter said the firms’ interest in the troubled tech company was still very early. Verizon has voiced interest in a potential deal, and AT&T and IAC are also believed to be examining the company, people familiar with the matter said.
Marissa Mayer, Yahoo’s chief executive, on Tuesday announced several measures aimed at lifting the fortunes of the company, including laying off 15 per cent of its workforce.
The decision to consider approaches for its core business came after pressure from activist investors, who had been calling for a sale and radical shake-up of the way Ms Mayer ran the group.
People familiar with the matter said the private equity groups looking at Yahoo were grappling with the complicated task of valuing its core business without the 15 per cent Alibaba stake which the US group is seeking to separate via a reverse spin-off.
Yahoo’s stake in the Chinese ecommerce company was worth $24bn on Wednesday, compared to its market capitalisation of $27.4bn. The US company has more than $5bn in net cash and continues to generate positive cash flow.
Several analysts value Yahoo’s core business at $3bn-$4bn, although analysts at Barclays estimate its enterprise value at about $2.5bn. Yahoo has been working to bolster growth in areas such as mobile search and video, but sales have been falling for its core desktop search ads.
Ms Mayer still believes that she can turn Yahoo round, said people close to her, who added that she would rather not sell the company’s namesake asset. However, her latest plan to revive the group’s fortunes failed to convince activists and analysts that it would succeed.
“Yahoo is embarking on yet another turnround plan . . . we are not going to give them the benefit of the doubt on this one,” said Ben Schachter, analyst at Macquarie.
On Tuesday afternoon, Yahoo reported fourth-quarter sales that were slightly stronger than expected, but failed to show growth. Shares in the group were down 6 per cent on Wednesday.
Any potential bid for Yahoo would be likely to gain support from activist shareholders who have been ratcheting up pressure on the board.
Yahoo forecast a decline in revenues in 2016, a surprising move that analysts said could strengthen activists’ hand. “The guidance that they gave is below expectations, so they are giving [activists] everything they need to go after management,” said Youssef Squali, analyst at Cantor Fitzgerald.
Ms Mayer said the company had consulted with shareholders as it drew up its new plan. “We did factor into our current strategic plan, our interactions with various strategic shareholders,” she said.
Bain and TPG declined to comment.