For some reason many started comparing Verizon-Yahoo deal with more recent M&A, which I do not want to mention.
I would like to take that deal apart to save you, my readers, from bringing up this terrible example.
Let’s clear this up right away: Yahoo was NOT sold to Verizon at 8x discount to its market cap.
Here are the facts:
Yahoo consisted of (rough overview):
- Internet business (core operational unit)
- Real Estate
- Cash on hand
- Patents, trademarks, etc.
- Most importantly – stakes in Alibaba and Yahoo Japan
Yahoo market cap (rough overview):
- Estimate market value of stakes in Alibaba/Yahoo Japan etc. – US$ 40 Bn.
- Cash – US$ 7.1Bn.
- Total market value (generous 7% discount) – US$ 43 Bn.
So what happened after “takeover”?
- Yahoo still owns US$ 40Bn. worth equity
- Yahoo still holds US$ 7.1Bn. In cash
- Yahoo gained US$ 4.8Bn. in cash
- A huge number of patents, trademarks, bonds, notes, shareholdings (outside main equity mentioned in a.)
I cannot judge whether it was a wise decision to transform Yahoo from internet pioneer into asset holding. From outside, the web business was definitely failing. And board of Yahoo had a fiduciary duty (special thanks to my Stanford mentors Prof. Dan Sicilliano, Prof. Roman Weil) to act in best interest of shareholders.
Markets nearly did not react at this “takeover”
Yahoo’s chart clearly shows a very slight drop, which can be justified with current uncertainty on how this deal as well as overseas assets of Yahoo will be assessed by the IRS, and how much the restructuring of the company will cost.