The most likely outcome for Yahoo is a sale, says SunTrust analyst Robert Peck.
Peck has been the leading analyst on the Yahoo story. He was first to suggest that Marissa Mayer was in trouble, warning that investors were wary of her plan to spin out Alibaba shares. He was first to say Yahoo was likely to pause its spin out of Alibaba shares.
So, Peck knows what’s going on, and when he says something, people should listen.
On Wednesday, Yahoo announced that it wouldn’t spin out Alibaba, and instead would spin out its internet businesses.
On a call with analysts, Yahoo’s chairman Maynard Webb said, “There is no determination by the board to sell the company or any part of it.”
Webb says he believes that Yahoo is undervalued, and the company’s focus will be on revitalizing the company and getting investors to properly value the company.
However, he also said, “The Board has fiduciary obligation to engage with any legitimate person that comes forward with a good offer.”
Peck believes that’s more likely to happen. He says either a strategic buyer like Verizon, or a private equity firm is likely to step in and buy Yahoo, as opposed to Yahoo spending the rest of the year trying to figure out how to spin out its internet business.
“Given the simplicity and speed of a sale and the lack of a desire by investors to undergo a year-long spin process, we think a sale of the core or entire company is most likely,” writes Peck.
He believes a sale happens in the first half of the year so that Yahoo because investors are impatient, the core business isn’t getting better, and the board wants to avoid a proxy war with shareholders.
What is Yahoo’s core business worth? Peck says $6-$8 billion, which is 5X a projected EBITDA (a financial term that gives a view of the operating profit of a business).
Here’s his breakdown of the Yahoo business: