Will Yahoo Be In Play Again? Here's a Few Scenarios (That Could Be More Than Just Scenarios)
One of the results of Yahoo’s weak earnings report earlier this week has been the renewal of chatter about possible changes in its leadership and even ownership.
And continued investor discomfort with its troubled stock price–Yahoo shares are down 7.25 percent year over year and an astonishing 49 percent on a five-year basis–and the level of renewed grumbling by major institutional shareholders is causing some key players to go back to their PowerPoints to reevaluate various options.
(By way of contrast, Google is down about 4.5 percent year over year–largely due to last week’s earnings release with higher than expected expenses–but still up more than 20 percent for the five years.)
As many might recall, last year Yahoo was under scrutiny by a number of interested parties–from big media companies to other digital players to private equity firms–considering a number of takeover scenarios.
Most of them were just talk and no action resulted, but that did not mean that interest went away.
The truth is, they are still out there and ruminating–this time with what sources describe as a much more amenable Yahoo board, with several of its key members willing to entertain any legitimate offers or ideas to improve the Silicon Valley search giant’s prospects.
In the last go-round, by contrast, Yahoo’s top execs–including CEO Carol Bartz–denied any interest in the swirl of rumors related to a variety of ideas.
That’s definitely changed–at least at the board level–so here are three very credible scenarios of what could happen:
Peetie, Peetie, Yahoo-Sweetie
Late last year, BoomTown wrote a post about the interest that former News Corp. COO and President Peter Chernin–who now owns his own entertainment production company–had in the situation at Yahoo.
As I wrote in November:
But multiple sources from a variety of sides said that Chernin, a well-liked and deeply experienced media and entertainment exec, has been contacted by a number of private equity firms and other investors about his interest in becoming involved should any of the various and sundry scenarios around the Internet giant pan out.
And Chernin, many sources said, has expressed a definite interest in the situation, perhaps because he was deeply involved in a previous deal when running News Corp.
At the time, it involved combining the media giant’s Myspace social networking site with Yahoo and also Microsoft’s portal MSN and creating a new company, code-named “TrafficCo.”
Indeed, that interest remains for Chernin, who has also been an increasingly active investor, including in the digital sector. He is an angel funder of the hot social media app start-up Flipboard, and also just joined the board of the popular Pandora music service.
The most likely possible scenarios have him joining with deep-pocketed partners, including Providence Equity Partners and, yes, Microsoft, as well as investment banks or advisory firms, such as Morgan Stanley and Code Advisors.
The approach being considered–which would only be done in a friendly way, with the cooperation of Yahoo’s board–would center on making a large enough investment in its shares, allowing the group to take control of the management and the board, putting Chernin in as chairman and maybe CEO (or with a new CEO–see next section).
If Microsoft were involved–and Chernin has strong ties there–such a scenario might include folding all its online properties into Yahoo and renegotiating its rocky search partnership, too.
This is an idea that intrigues a lot of people–including current Yahoo board chairman Roy Bostock, co-founder Jerry Yang and other board members–who have indicated recently to several investors and dealmakers a willingness to listen to credible player such as Chernin.
But, in this scenario, it would be up to Chernin and his partners to make a prosposal, said sources, and he might decide that the complexity of getting the power to make big changes at Yahoo is too big to tackle.
In addition, Chernin remains a successful Hollywood player, with several major television and movie projects in the works, as well as big investment possibilities in Asia.
“Does he want the headache of Yahoo at this point in his career?” asked one person, among many Chernin has talked to recently about becoming involved in the company. “Would you?”
Maybe so, if it would provide a big financial windfall. Many think an exec with a reputation like Chernin’s could easily begin to move Yahoo’s moribund stock upward quickly.
ABC (Anybody But Carol)
Here’s one truth: Yahoo CEO Carol Bartz does not get proper credit for a number of moves she has made since coming to the company two years ago, including cleaning up the messy corporate structure, de-complexifying garbled systems, cutting costs and bringing its far-flung operations into line.
Yahoo’s stock is certainly doing better than when she arrived in early January of 2009, when it was in the $12 range compared to its current $16 price point.
But here’s another: That stock price now includes more than $10 in solid assets–cash and Yahoo’s much more valuable stakes in China’s Alibaba Group and Yahoo! Japan–leaving very little true share appreciation.
And here are more truths: Bartz’s inability to get revenues growing, innovations flowing, promising start-ups acquired and–most importantly–to stop the continual exodus of talent out the door of Yahoo has made her tenure shakier than ever.
Add to that making its relationships with Asian partners more tense, almost no traction in key mobile, video and social arenas, a record of loud public declarations that have fallen flat and serious troubles in Yahoo’s search and online partnership with Microsoft–a deal Bartz struck and is charged with managing–recently highlighted in Yahoo’s earnings earlier this week.
As shareholder activist Eric Jackson, who has long agitated for change at Yahoo, wrote this week in a post:
“The truth is that investors are fed up with Bartz. Their enmity towards Bartz is palpable when you talk to them. Bartz talked a big game coming into the job and she hasn’t delivered. It’s that simple.”
Well, not that simple and maybe not fair, but it’s also clear that no one thinks Bartz will be re-upped when her contract is up in 18 months.
Thus, it’s no surprise that ideas of other possible leaders of Yahoo are being contemplated now.
Here’s the short list I have made of my choices: Akamai President and Yahoo board member David Kenny; former Microsoft exec and current Juniper Networks CEO Kevin Johnson; former AOL CEO and current News Corp. digital head Jon Miller; and Nikesh Arora, current Chief Business Officer and sales head at Google.
There are plenty more to pick from, of course, and any could be installed in conjunction with an effort such as Chernin’s.
AOL Under the Hoop
No good Yahoo scenario plotting can be contemplated without including AOL and its flashy CEO Tim Armstrong.
Armstrong has made no secret of wanting to get ahold of Yahoo properties to apply the strategy he has been trying at AOL to get it moving again.
Which is: To become the premiere digital media company.
Which is actually Yahoo’s new motto–although arguably, in word and deed, Armstrong has been much more active in pushing the concept and narrative.
That includes his incessant acquisitions of all kinds of online media properties, including the big fish–the $315 million purchase of the Huffington Post and the coronation of its even-flashier co-founder Arianna Huffington as content chief.
Armstrong has certainly not been averse to the idea of a Yahoo-AOL hookup with him at the top, and has been actively talking to anyone interested in such a deal.
And things could get a lot more interesting if AOL linked with a bigger strategic partner, such as News Corp. or Disney or even Google, Armstrong’s former stomping grounds.
Still, wishing does not make it so, especially with a much smaller and weaker set of assets than Yahoo and a still poor record on goosing its advertising sales.
AOL’s stock is down 30 percent year over year, as investors still worry about Armstrong’s ability to turn the company around, which kind of puts him in the same situation as Bartz.
“AOL is waiting under the hoop for whatever happens, which is a good place to be,” said one person close to the situation. “Why not?”
Why not, indeed–so, let the games begin.