Verizon might have to pay for more pieces of Yahoo than it wants

It’s no secret Verizon is interested in buying Yahoo’s core internet business.

But it looks like the deal won’t come cheap, and would possibly require Verizon to buy parts of Yahoo it doesn’t even want to own.

According to CNBC’s David Faber, Verizon’s $3.5 billion bid for Yahoo’s core internet business is in the lower price range, and is considered a “laggard” compared to other bids that exceeded $5 billion in total.

Unlike some of the other bids, Verizon’s bid does not include Yahoo’s patents or real-estate property, each of which is estimated to be worth an additional $1 billion.

That means if Verizon wants to win the auction for Yahoo’s internet business, it will have to up its bidding price and take on other parts of Yahoo, like its intellectual property and office buildings — assets it didn’t bid for until now.

“It puts pressure on Verizon to bid for not just the web assets but for the patents and real estate as well,” Eric Jackson, managing director of SpringOwl Asset Management, told Business Insider.

Jackson doesn’t believe anything has changed in the way Verizon values Yahoo’s business. It’s simply due to having more competition, as seen with Quicken Loans founder Dan Gilbert pairing with Warren Buffett to join the bidding war last month. Jackson sees big companies like Comcast or Fox to be possible surprise bidders in the coming weeks.

$5 billion

Thursday’s news also signals Yahoo won’t consider any bid below $5 billion. As CNBC noted, Verizon’s $3.5 billion bid is in the bottom range of bids, and there’s been talks of Verizon possibly not even making it past the current round of auction with its relatively low offer.

SunTrust analyst Bob Peck says the $5 billion range “makes a lot more sense” given all the different pieces of Yahoo involved in the bidding process. Particularly, he believes the company that offers to take more assets will be in a better position to win the deal, as it would just simplify and expedite the entire sales process for Yahoo.

“All else equal, Yahoo would choose a bid that includes the properties and IP against a comparable bid that didn’t,” Peck told us. “It just makes it simpler for them.”

Yahoo’s currently in the process of selling its core business, which is comprised of its internet business, real-estate properties, patents, and some licensing deals, like the royalty it receives from Yahoo Japan. It’s reported to have closed its second round of bidding earlier this week, and is taking final bids until mid-July, at which point Yahoo will disclose the buyer.

Verizon has long been considered the front-runner to buy Yahoo, but recent reports suggest AT&T and a number of private equity firms are also in play. Still, Peck believes at $5 billion, it will be one of the big strategic buyers, like Verizon or AT&T, that win the auction because of the cost savings it will ultimately see with the merger.

“Because of the cost synergies, it’s really the strategic buyers who can afford to pay the most,” he said.

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