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Yahoo Board Nominations Due Soon; Company Prepped For Fire Sale

Yahoo ‘s ( YHOO ) recent writedown of its Tumblr microblog is preparing the company’s core business for sale to private equity firms, possibly at a discount, Rosenblatt Securities said Wednesday. Tumblr revenue did not meet Yahoo’s internal projection for 2015, Rosenblatt analyst Martin Pyykkonen said in a research note. He pointed out that Yahoo’s 2016 guidance for its revenue minus traffic acquisition costs — commissions it pays publishers that run its ads — calls for a nearly 20% decline. “Buyers (with real bids) would have emerged by now if there was strong audience and usage growth to drive advertising demand,” said Pyykkonen, who maintains a sell rating and price target of 30 on Yahoo stock. He said that “Yahoo’s recent writedown of the part of the goodwill on Tumblr is one example of sprucing up the balance sheet for sale of the core business. But we still think it will likely fall short of a premium takeover valuation on Yahoo’s stock.” Yahoo stock was up 0.9% in midday trading in the stock market today , above 33. Yahoo stock has gained 29% since it skidded to a 31-month low of 26.15 last month. But Yahoo stock is down 22% the past 12 months. Yahoo CEO Marissa Mayer is under intensified pressure from major investor Starboard Value, which has urged the exit of Mayer and some directors, as well as the spinoff of Yahoo’s core search business. Yahoo directors are close to offering at least two board seats to the activist hedge fund in order to avert a proxy fight, according to a recent New York Post report. Board member nominations are due by March 26, said Pyykkonen. Dozens of groups are expressing interest in buying the struggling Web portal, say analysts, with Verizon ( VZ ) among those said to be the most likely acquirer. Aside from forming a committee of independent directors to explore possible transactions, Yahoo has announced that it will bring in Goldman Sachs ( GS ), JPMorgan ( JPM ) and PJT Partners ( PJT ) as financial advisors, along with law firm Cravath, Swaine & Moore. Yahoo Faced With Declining Fundamentals Pyykkonen’s report called out the Web company’s “declining fundamentals,” highlighted by drops in users and usage, as well as the Tumblr writedown. Greater revenue concentration from mobile advertising is “benefiting the likes of Facebook ( FB ) and Alphabet ( GOOGL )-owned Google” rather than Yahoo, he said, adding that Netflix ( NFLX ) is also siphoning traffic away from Yahoo. “The fundamental challenge in Yahoo’s core business is the fact that the platform is simply much less relevant to advertisers than it used to be, when it was labeled as a portal, and more recently aggregated content from multiple sources, while producing relatively little of its own unique content,” he said. Comcast ( CMCSA ) is another company rumored to be interested in Yahoo. Verizon has talked up its interest in buying some Yahoo assets “at the right price,” but also said it does not want to “catch a falling knife,” referring to the state of Yahoo’s business. Rumors re-emerged last week that e-commerce giant Alibaba Group ( BABA ) might buy back a 15%  stake that Yahoo now holds in the Chinese company. Yahoo’s Asian assets — comprised of its Alibaba holdings and a 35.5% stake in Yahoo Japan — represent the vast majority of Yahoo’s $31.4 billion market value as of Wednesday. But some observers say such a transaction is unlikely because of high tax implications.

Verizon Most Likely Yahoo ‘Savior’ But Many Interested?

Expressions of interest are pouring in from dozens of groups that are eyeing buying struggling Web portal Yahoo ( YHOO ), with Verizon ( VZ ) rumored to be the most likely acquirer, said Monness Crespi Hardt analyst James Cakmak in an industry research report on Monday. “Verizon is still the most likely savior despite potential risks, in our opinion,” wrote Cakmak, who added that more than 40 expressions of interest have been made for Yahoo and that technology-focused investment banker Frank Quattrone may be positioning embattled Yahoo CEO Marissa Mayer along with the company’s core business as a package deal. But the prospects for a private industry pair-up are low, according to Cakmak. “While we have entertained the idea of private equity previously, we no longer think it’s a realistic option given Ms. Mayer’s desire to maintain a central role,” wrote Cakmak. Monness Crespi estimates the value of Yahoo’s core assets at $3 billion to $4 billion. Yahoo has received nearly 40 expressions of interest from prospective bidders including Verizon, AT&T and Time, said a report last week in the NY Post . Mayer is under intensified pressure from major investor Starboard Value, which has urged the exit of Mayer and some directors, as well as the spinoff of Yahoo’s core search business. Yahoo directors are close to offering at least two board seats to the activist hedge fund in order to avert a proxy fight, according to the New York Post’s report. Aside from forming a committee of independent directors to explore possible transactions, Yahoo announced last week that it will bring in Goldman Sachs, JPMorgan and PJT Partners as financial advisors, along with law firm Cravath, Swaine & Moore. Another company rumored to be interested in Yahoo is  Comcast ( CMCSA ). Verizon has talked up its interest in buying some Yahoo assets “at the right price,” but also said it does not want to “catch a falling knife,” referring to the state of Yahoo’s business. Rumors re-emerged last week that e-commerce giant Alibaba Group ( BABA ) might buy back a valuable stake that Yahoo now holds in the Chinese company. Yahoo’s Asian assets — comprised of its Alibaba holdings and a 35.5% stake in Yahoo Japan — represent the vast majority of Yahoo’s $32.2 billion market value. Yahoo owns a 15% stake in Alibaba, or about 384 million shares. But some observers say such a transaction is unlikely because of high tax implications for Alibaba. Analysts say Yahoo is poised to lose more ad dollars to Facebook ( FB ), Alphabet ( GOOGL )-owned Google and high-profile startups such as Snapchat and Pinterest. Yahoo stock was up 1% in midday trading in the stock market today , near 34, its highest point since late December. But concerns on the health of its core business has driven down Yahoo stock 22% since this time last year. Alibaba stock was up 2%, near 74. A Wall Street Journal report noted that the China e-commerce king’s Ant Financial Services is looking to raise up to $3 billion, pricing the subsidiary’s valuation at over $50 billion and potentially vaulting it into the Top 10 of China’s largest financial companies.  

SoftBank Divides, Lumps Sprint, Alibaba Stake Amid Debt Crunch

SoftBank Group said it will split into two companies, putting U.S.-based Sprint ( S ), its stake in China’s Alibaba ( BABA ) and other overseas operations into one entity. In its statement, SoftBank,, which is Sprint’s majority owner, did not say how the restructuring  would affect its sizable debt. Credit rating agencies have not yet commented on the move. Nikesh Arora, SoftBank Group president, will head up operations abroad, the company said. The other entity will include SoftBank’s mobile operations in Japan, including its investment in Yahoo Japan ( YHOO ). SoftBank founder Masayoshi Son will control both companies. SoftBank shares closed 1.8% lower Monday on the Tokyo stock exchange before the announcement. Sprint stock was up 1.5% in early trading in the stock market today , near 4. Sprint has struggled vs. Verizon Communications ( VZ ), AT&T ( T ) and T-Mobile US ( TMUS ). According to a Bloomberg report last week, SoftBank is set to establish a subsidiary that will inject capital into Sprint. The subsidiary will accept Sprint’s wireless equipment and part of its wireless spectrum as collateral for $3 billion to $5 billion in loans. Sprint has about $33 billion in debt. Sprint exited Q4 with about $6 billion in liquidity, but continues to burn cash. “With $2.3 billion in debt coming due in 2016 ($10 billion by 2020) and given the widening spreads in the high-yield markets, Sprint has limited options to favorably access capital markets,” said Oppenheimer in a research report. Some analysts have speculated that SoftBank will take a write-down related to the Sprint acquisition. SoftBank paid $21.6 billion for 78% of Sprint, in a deal that closed in 2013. “Sprint’s share price had risen to $4 as of March 3, and we expect SoftBank to avoid asset impairment losses on its stake in Sprint at the parent level if the share price is above the end-September 2015 level of $3.84 at end-March 2016,” said Nomura Securities in a report.