Microsoft-Yahoo! Deal isn’t Dead Yet
It
keeps resurrecting. Now, Ivory Investment Management, one of Yahoo's
largest stockholders with 21.4 million, or 1.5% of the shares
outstanding, has urged the Board to salvage Microsoft deal. It believes
Yahoo! could get $15 billion upfront from Microsoft.
Ivory
proposed in a letter to Yahoo's Board of Directors that the company
salvage a deal with Microsoft "and not miss another value maximization
opportunity."
Noting
Microsoft's renewed interest, Ivory proposed that the company sell its
search business to Microsoft, with Microsoft becoming the search
provider for all Yahoo! properties.
Under
the Ivory proposal, Microsoft would own and operate the combined search
platform, with Yahoo! becoming an affiliate that retains 80% of the
revenue generated through searches on its own site. Finally, Microsoft
would become the search engine for Yahoo's existing search affiliates.
A
search deal with Microsoft could deliver value to Yahoo! shareholders of
$24-29 per share, or more than double yesterday's closing price of
$12.19.
Ivory
stated in its letter that it believed Yahoo could "receive more than $15
billion upfront from Microsoft for its search business and increase
EBITDA by more than $500 million per annum."
Noting
that Yahoo and Microsoft each may be spending well over $1 billion a
year on their respective search businesses, Ivory said that combining
the two could save $800 million in duplicate operating costs.
In
addition, due to the increased economies of scale in the search
business, Ivory believes that the combination could increase total
search revenues by at least 20% or $500 million per year.
Ivory
noted that both companies need to act now because they continue losing
ground to Google, and that "it is widely acknowledged that neither
company has kept pace with Google's innovation and investment
spending."
Ivory
said it sent the proposal to directors "to express serious concern
regarding the failure of the Board of Directors to maximize shareholder
value of the company."
Ivory
noted that Microsoft's spurned $31-a-share offer earlier this year for
all of Yahoo! represents a 150% premium to Yahoo's current stock price.
In May this year, Microsoft had decided to step aside
and announced it has withdrawn its acquisition proposal that offered to
pay $47.5 billion for the Yahoo! buyout. However, it kept its eyes on
the Yahoo! search business.
