Yahoo Shareholders Are Making Spreadsheets To Persuade Marissa Mayer To Sell Yahoo To AOL

Marissa mayerREUTERS/Denis BalibouseMarissa Mayer, Chief Executive Officer of Yahoo, speaks during a session at the World Economic Forum (WEF) in Davos January 25, 2014.

This morning, the New York Times Magazine published a long adaptation of a book called “Marissa Mayer and the Fight to Save Yahoo!”

(Disclosure: the author of this post wrote both.)

Buried at the bottom of the Times story, there’s this news: “Major Yahoo shareholders have recently begun collaborating on a series of spreadsheets that calculate that AOL and Yahoo are worth between 70 and 80 per cent more when combined than they are apart.”

We’ve seen a version of this spreadsheet.

Here’s the breakdown:

  • It assumes that Yahoo will soon split into two companies — one, a holding company for Yahoo’s stakes in Yahoo Japan and Alibaba, and another, the core Yahoo business
  • It says the core Yahoo business will be worth about $US5.5 billion.
  • It notes that AOL’s current market cap floating around $US3.3 billion.
  • It suggests that, even though AOL will technically be the acquirer, a new, combined Yahoo-AOL will be ~35% owned by current AOL shareholders and ~65% owned by current Yahoo shareholders.
  • You’d think that combining $US5.5 billion and $US3.3 billion companies would make a $US8.8 billion company. The spreadsheet say that the company will actually be worth $US15.8 billion. 
  • It gets there two ways.
  • First, it says that combining the companies will create a “cost synergy” of $US1 billion, raising a combined operating income from ~$US1.5 billion to ~$US2.5 billion.
  • Second, it argues that the new company, run by AOL, will trade at AOL’s earnings multiple of 6.2, rather than Yahoo’s core business, closer to 1.
  • 6.2 multiplied by $US2.5 billion equals $US15.8 billion.

We’ve heard that AOL CEO Tim Armstrong has also seen a version of this spreadsheet and that he’d be willing to consider a deal. This makes sense. He is AOL’s largest shareholder, and he would make a lot of money increasing the value of that stake by 70% or more.

It’s less likely that Mayer will do a deal. Over the summer, her M&A chief, Jackie Reses, said that AOL may be acquired — but not by Yahoo. 

Also over the summer, there were many reports about Mayer and Armstrong meeting for a drink during a conference put on by investment bank Allen & Co in Sun Valley. We’ve heard the meeting was not a serious business meeting. Evidence: Mayer’s husband, Zach Bogue, attended. 

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