Yahoo reported a pretty solid quarter. But Douglas McIntyre at 24/7 Wall Street thinks it wasn’t enough. Despite coming in on the high end of guidance, McIntyre argues, Yahoo failed to offer a convincing rationale for continued independence:
Jerry Yang and the Yahoo! board have made a fight of it, but theirs has been a victory of pluck over genius. The company never came up with an alternative to the Microsoft offer. The most it had to offer was a paper-thin forecast about the future and some lame leaks to the news media about alternative deals.
Yahoo! has one last chance, Whether it can weather the storm of shareholder objections to stay on its own is a matter best left to Nostradamus and his progeny. There is, however, one set of moves that might allow Yahoo! to remain what it is and has been for years–an independent public company.
First, says McIntyre, Yahoo needs to shed its unprofitable, non-core businesses, like Chinese e-commerce site Alibaba and Yahoo! Japan. This would net Yahoo around $8 billion with which it can buy out some of its impatient shareholders. Next is a deal with AOL:
That leaves the most obvious combination of Yahoo! with AOL. If Time Warner (TWX) would part with the property for a 25% interest in Yahoo! the merger might work. Some of the consideration from TWX would have to come in cash, perhaps $5 billion. That would give the portal firm more money to spread among its shareholders. AOL would have to contend with the fact that Google is a small shareholder in the company, and it remains to be seen if that can be negotiated.
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