Everyone seems anxious to hook up Yahoo! (YHOO) these days. The dot-com pioneer has become that single aunt in every family whom everyone thinks sorely needs a soul mate.
But what if Yahoo! is happy to be single? Yahoo! has been buyout bait since Carol Bartz was dismissed two months ago. Investment bankers have poured in, and suitors have been lining up on the porch step. China's Alibaba, Microsoft (MSFT), and even Google (GOOG) have been some of the names reportedly interested in acquiring at least parts of the online giant.
Well, Yahoo! may be throwing a wrench into the system by trying on the hat of acquirer instead of acquisition target. It announced this week that it will be snapping up interclick -- a provider of data-valuation capabilities to deliver more effective online advertising campaigns -- in a $270 million deal.
The Runaway Bride Wears Purple
Launching a tender offer for a small display advertising specialist isn't going to be a deal breaker if somebody really wants to buy Yahoo!. However, it does complicate things. Yahoo! will be paying cash for the deal, eating into the nearly $2.9 billion of cash and marketable securities that a buyer thought it would be getting in a transaction. It could have been worse. Yahoo! could have offered to pay in stock, forcing a potential buyer of Yahoo! to pay a premium on the freshly minted shares.
However, spending $270 million to beef up its online advertising stronghold indicates that Yahoo! -- even with an interim CEO and daily doses of buyout chatter -- is preparing to grow on its own.
Trying Plan B on for Size
Bringing in an investment banker to assess strategic alternatives isn't always a prelude to a buyout. There are no guarantees that a company or a consortium of companies and private equity firms will offer a reasonable price. For a company with as many moving parts as Yahoo!, it may very well lead to spinoffs instead of an outright sale.
Yahoo! knows that it has valuable Asian investments and a healthy cash balance. Temporary CEO Tim Morse emphasized that his company's stakes in Yahoo! Japan and China's Alibaba combined for a value of $20.4 billion at the end of September. That is actually more than Yahoo!'s current enterprise value, which essentially makes Yahoo! free if it can overcome the tax liability in unloading its assets. Some are now speculating that Yahoo! may decide to simply spin off its Asian investments to its shareholders, hoping that investors realize how cheap Yahoo! itself is at the moment.
The only thing that is clear is that Yahoo! must do something. Investors who have been bidding up the shares since Bartz's ouster aren't buying in based on its recent execution. Revenue excluding traffic acquisition costs fell 5% to $1.072 billion in its latest quarter, and operating profits fell by 6%.
Change will come, but this has never meant that Yahoo! is destined to try on a purple wedding dress.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Yahoo!, Google, and Microsoft. Motley Fool newsletter services have recommended buying shares of Yahoo!, Google, and Microsoft.