Steve Ballmer Hoo-Ha Reveals Yahoo Nightmare Scenario
Could Yahoo ever become a takeover target?
This kind of patently annoying answer from a CEO could certainly help fuel such a scenario–this time in an interview Microsoft head Steve Ballmer had yesterday with Charlie Rose:
Rose: Are you in talks to acquire Yahoo?
Ballmer: If I were, I wouldn’t say anything, and if I weren’t, I wouldn’t say anything.
Translation for those who don’t speak corporate hoo-ha: There were talks. They did not work out as yet. But we thought we could still keep Yahoo in play all by ourselves by being vague.
It’s a technique perfected, in this case, by the master of this particular deal-making game, Rupert Murdoch, who put an $8 billion value on his MySpace property by floating the idea of trading a 25% stake of Yahoo for MySpace in an earlier interview with Time magazine:
But as MySpace showed signs of reaching saturation, Murdoch began very preliminary, exploratory talks about trading the site for 25% or more of Yahoo. ‘Terry Semel was enthusiastic about it,’ he says of the then Yahoo CEO. ‘We were looking to see if it was a good idea. I wasn’t sure.’ ”
It is all very interesting in a top-level kind of way at this point, as I doubt new CEO Jerry Yang, who is ferreted away working on a master plan to fix Yahoo right now, has any intention of selling Yahoo before he is done with his top-to-bottom evaluation of the company, even if a sale is the right option in the end.
He might not have a choice, though, as a rival Web exec pointed out to me the other day, noting that the downturn in the stock market, helped by the continued speculation and goosing of the rumors of a Yahoo sale, could spell trouble for the Internet portal.
If the market continues to decline, bringing down the economy, even fast-growing online ad sales will surely take a hit. His theory went that if Yahoo has a weak quarter or two, its shares–already down at lows not seen for more than three years–could get sliced and diced further.
Some think Yahoo is currently not as much of a bargain at about $23 a share now, especially given its turnaround status. Still, its market value remains a lofty $31 billion.
But what if the price to own Yahoo–hit hard by economic forces it could not overcome, as it sought to heal itself–declined to $15 billion?
Corporate anti-takeover measures notwithstanding, of course, that would then make it a screaming buy for players like News Corp., Microsoft and even Google. And that leaves out more rapacious private equity funds, who would surely jump into a race to buy a company that still has gigantic traffic, enormous brand equity and a spate of terrific online properties.
Former analyst Henry Blodget had his own interesting take in a recent piece about the possible recessionary impact on both Google and Yahoo. While Google’s Bad and Ugly scenarios include flattened revenue and a huge drop in operating profits, Yahoo faces an even more dire landscape.
For Yahoo, the situation is scarier, because the company is growing slowly even now. In our GOOD scenario, revenue growth slows to 5%, as do expenses. In this case, operating profit grows slightly. In our BAD scenario, revenue drops 5% and expenses stay flat, cutting the operating margin and operating profit nearly in half (this is perfectly plausible). In our UGLY scenario, revenue drops 20% and expenses stay flat–and suddenly the company loses $600 million a year.”
Although Blodget might be ramping up the volume a bit too much here, it’s always good to be mindful of the worst-case scenario.
Please see this disclosure related to me and Google.