Blog Post

Who should buy Yahoo? Handicapping 5 likely suitors

At least Yahoo can’t complain this week about Google grabbing all the headlines.

While Google has been dishing out the usual morsels of news – tweaks to Google Video, YouTube and Google Office – everyone else can’t stop talking about Yahoo. First Terry Semel got dissed at the shareholders meeting, although his job looked secure. Then he was out, just in time to avoid another disappointing quarter.

Now it’s growing evident that the bigger force driving these events is a plan to put Yahoo on the block. Why else would appoint a founder as CEO, foregoing the chance to bring in an experienced CEO from outside (even though, as Semel said, Yahoo had “long been talking about … a smooth transition.”) The shrewd Rupert Murdoch sees a chance to trade up from MySpace and its plague of controversies to a more respected Internet name.

If Yahoo’s board is, as rumors have it, decides to seek a suitor and take over after the Internet giant after 13 years of bachelorhood, the question is not so much when as who. So with the markets entering its sleepy summer season, let’s take some time to handicap those potential suitors. The following is pure speculation: Think of it as a shotgun-wedding pool, as opposed to a death pool. [digg=]

Private Equity Firm
Odds: 7-1
Strategic sense: A-
Certainly not the most likely scenario right now, but to my mind the one that would probably serve Yahoo the best in the long run. Yahoo’s corporate culture and structure are a shambles, and repairing things while keeping revenue growing and innovation alive will be nearly impossible with current leadership and board direction.

Private-equity takeovers are ideal for these kinds of clean-ups. They eliminate infighting and focus on implementing a smart plan quickly. There is significant risk: A restructured Yahoo may lose its innovative edge and alienate its longtime users. But as things stand now, that seems to be the path Yahoo is on anyway.

Comcast or AT&T
Odds: 5-1
Strategic sense: B
It used to be big ISPs felt they needed a Web portal to lure in customers. As broadband content matures and the “triple play” of telephony, television and the Internet starts to blur together, the idea is back in fashion. Comcast has a burning desire to become a destination for media consumers. But AT&T has longstanding ties with Yahoo through its SBC acquisition. They’ve been quiet suitors so far, but we may see one or both elbow their way to the front of the line.

Odds: 4-1
Strategic sense: B-
The obvious argument for a Microsoft-Yahoo combo is that it would create overnight a sizable competitor to Google in online advertising. If it happens, though, get ready for a lot of sound bites about how tying two bricks together doesn’t make a life raft. Integrating both companies may prove so distracting that neither one could focus on the task at hand: beating Google at its game.

News Corp./MySpace
Odds: 20-1
Strategic sense: C-
Much less likely to happen without an old-media style executive like Semel to bridge the cultural gaps. In fact, Murdoch may have shown his hand by leaking this deal because Semel’s departure makes it less likely. It would benefit Murdoch a lot more than it would Yahoo – but come to think about it, that probably increases the chances it will happen.

GE, Disney or CBS
Odds: 40-1
Strategic sense: D
Let’s hope this doesn’t happen. In the merger-mania of 2007, a company decides this is their best chance to have a sudden footprint in the Internet, where ad dollars are migrating. Well okay, maybe some Google shareholders are hoping this will happen.

45 Responses to “Who should buy Yahoo? Handicapping 5 likely suitors”

  1. purple haze

    it will be ebay. meg whitman would be the last great hope to establish eHoo as the pepsi to goog’s coke. she knows yahoo well, could run it for two more years and then retire.

    second place would be news corp. would put rupert ahead of ebay were it not for the dow jones acquisition (which he will get); might distract him from the yahoo kill…though DJ combined with Y Finance would be pretty great.

  2. I may be wrong (happens all the time)

    But I think Jerry taking over as CEO makes a takeover of Y! less likely, not more.

    Jerry is there to rally the troops. I don’t think he’s the guy the board would have brought in if they were trying to get the best price for the company.

  3. eBay. Not only would each compliment each other (imagine Skype being integrated into Y! Mail, Y! IM, Flickr; Yahoo! search driving traffic to eBay, etc…) but they are physically close to each – not something to discount when execution risk is high in the Internet acquisition/merger space.

  4. Kevin Kelleher

    Yes, eBay was an obvious oversight. But I have to say I don’t see the advantage of mixing eBay’s online commerce with Yahoo’s advertising. Like Microsoft, eBay might consider Google only because both are in the path of its steamroller.

    Google buying Yahoo. I don’t see the triumverate going for it. And factoring out all the charges of monopoly it would raise, I don’t see the net benefit. But Google has surprised before.

    Regarding private equity, I have never worked on those deals. Still, there’s something to be said for Yahoo’s potential for consistent cash flow if it can get its act together.

  5. Anyone commenting that a PE firm will snatch up Y! clearly hasn’t worked for or with any firms doing these sorts of deals. The only way this works is to take on companies with predictable cash flow that are able to take on additional debt to finance the buyout. This almost always comes in the form of established, consistent companies, or ones with hard assets that they own or produce. If you don’t have stable cash flow, you can’t practically leverage, and without leverage you give up a huge chunk of your potential gain (s/t, that is).

    Y! won’t be bought by PE – the numbers don’t work.

  6. It seems strange to read all of the above and to ignore the cold, hard fact that no onw in this planet comes close to Google except for Yahoo! Apart from the fact that search is what it is all about – not even Microsoft can come close to Yahoo! – having 500 million customers a month is a pretty big number to ignore. Yahoo! has a monetisation problem and not an audience problem. Yes they have lost the social networking race but MySpace is not looking that hot outside the US. I don’t see any of the comments above take into account the strength of Yahoo!’s international operations. Yahoo! is the David that can take on Google’s Goliath. There is no other hope out there that can stop the internet from becoming a monopoly named Google.

  7. Ebay seems more appropriate than the other companies mentioned. Ebay desperately needs search to drive buyers. It would be roughly a merger of equals. The two already have a big deal going.

  8. GuyNamedNate

    It’s interesting to think about, I definitely think we’ll see Yahoo up for grabs in the not-too-distant future.

    I doubt Microsoft will buy it, they really don’t need any of Yahoo’s technology or products (or workers) and the only reason it would make sense would be to buy it and merge it into the Live platform, essentially killing it off in order to grow Live’s user-base.

    Google could never get away with buying/killing it’s biggest competitor when it’s already by far the dominant force in the marker and already has anti-trust complaints going against it (DoubleClick).

    I think PE is the most likely candidate, but I also don’t think it will be long before our speculation becomes pointless…it’s going to happen soon!

  9. I think Nokia should buy Yahoo. That would make Nokia a true Internet company, and the synergies from Nokia’s distribution machine on mobile and Yahoo’s social Net properties + backend infrastructure would create quite a formidable player in 1-2 years.

    It would not be a small acquisition that Nokia’s CEO Olli-Pekka Kallasvuo is talking about, but it would be a giant leap ahead for them.

  10. Anonymous Coward

    Another possibility is chopping it up:

    • MSN buys Yahoo Search, instantly they become a 30% marketshare competitor to Google.
    • Google buys Yahoo Search and kills it, eliminating a thorn in its side (tho expect trouble with regulators)
    • CBS, News, …., (lots of others) buy
    • Monster buys Yahoo! Jobs
    • Google buys Yahoo! Answers and Yahoo! 360

    And so on.

  11. nice writeup.

    i’m hoping it’s either a PE firm or Microsoft; anybody else will f**k it up royally. and altho i agree with the other commenter about “don’t forget about eBay”, you might still have to have a PE firm involved to get that done.

    but now that terry’s gone, the deal with Microsoft might be more doable — altho could be that YHOO inherits MSN, rather than the other way around. in fact, there could be a competition for the reverse-merger, with NEWS wanting to package up MySpace & their web properties vs MSFT wanting to package up MSN & theirs.

    still in any of these situations, there has to be a tech visionary to step in and lead. that ain’t coming out of NEWS, and it probably isn’t coming out of MSFT either. they should really tap one of the tier II execs over at YHOO who’s got fire in the belly, and give them a shot at the helm.

    • dave mcclure
  12. Awesome analysis, Kevin.

    I agree with Chris – Don’t forget eBay. Also, I wouldn’t totally dismiss Google. That would be possible the best damn acquisition – Yahoo wanted to by Google before it was big, Google grew, turning around to purchase Yahoo.

    What a story.

  13. I think it might be so – or there is a good chance that Semel might have been thinking about it and got kicked out for those reasons. It is just speculation on my part, so don’t take it too seriously.

  14. Well, in Germany Yahoo! made with the flickr fiasko aka censr all the headlines in the last 8 days infact. German bloggers are leaving Flickr in droves. In Asia you would say Yahoo!flickr lost their face forever and completely… This was really embarrassing. As a sample opinion see here.