Shareholders Hoping Yahoo! Inc. (YHOO) Sells To AOL, Inc. (AOL)
Major shareholders of Yahoo! Inc. (NASDAQ:YHOO) are preparing to lay the groundwork to convince its CEO, Marissa Mayer, of the need to sell the company to AOL, Inc. (NYSE:AOL). The group, which started collaborating, believes that the worth of the merged entity would be significantly higher by 70% or more than individually.
Yahoo To Be Split
According to a spreadsheet developed by major shareholders, Yahoo should be split into two companies. Accordingly, one company would be termed as a holding company for the stakes Yahoo has in Alibaba Group Holding Ltd (NYSE:BABA) and Yahoo Japan. The other company would focus on Yahoo’s core business, which was estimated to be approximately $5.5 billion.
The spreadsheet was found in the bottom of an adaptation story on ‘Marissa Mayer and the Fight to Save Yahoo!’ in New York Times Magazine. It indicated AOL’s existing market cap floating was approximately $3.3 billion. Its suggestion was that despite AOL being the technical buyer of Yahoo, it would have 35% interest in the merged entity while the rest would be owned by the existing shareholders of Yahoo.
Combined Market Cap
While an easy calculation suggests a combined market capitalization of $8.8 billion, the spreadsheet of Yahoo’s major shareholders thinks that it would be valued around $15.8 billion. It meant nearly 80% more than an individual market cap of $5.5 billion and $3.3 billion of Yahoo and AOL respectively.
The group’s part of justification for the market cap was that the integrated company would provide $1 billion as cost synergy. It would result in operating income growing to $2.5 billion from $1.5 billion. Secondly, it argued that the merged entity, which would be run by AOL, would trade at its earnings multiple of 6.2 instead of Yahoo’s core business, which was nearly 1. The spreadsheet said that $15.8 billion arrived at based on 6.2 multiplied by $2.5 billion.
AOL May Consider
Report indicated that AOL CEO, Tim Armstrong, has seen the spreadsheet and was willing to think about the deal. Since he is the biggest shareholder of AOL, the calculation would allow him to earn more by lifting his stake value. However, it remains to be seen whether Mayer would be interested in such a deal.
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