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Verizon: Yahoo Vulture Or White Night Bearing AOL Synergies?

Yahoo ( YHOO ) stock slid 3% the past week, even though telecom  Verizon Communications ( VZ ) has talked up its interest in buying some Yahoo assets “at the right price.” That’s what Verizon CEO Lowell McAdam told CNBC’s Jim Cramer on a Feb. 5 broadcast of “Mad Money.” Then on Monday, reports surfaced that Verizon had put AOL Chief Executive Tim Armstrong in charge of exploring a Yahoo acquisition. Verizon acquired AOL for $4.4 billion, including about $300 million in AOL debt, in June. Yahoo shareholders may be unimpressed over what Verizon could pony up, some analysts say. Verizon paid about eight times EBITDA (earnings before interest, taxes, depreciation and amortization) for AOL. AOL’s Internet business, however, had been improving, unlike Yahoo’s. Verizon could be vulture-like and wait for struggling Yahoo to struggle more — Yahoo announced its first round of layoffs on Wednesday amid growing management defections. But analysts say Verizon hopes Armstrong can woo Yahoo on good terms. (Verizon hasn’t hired bankers and there have been no formal talks, according to reports.) If Yahoo sells off its core Internet operations, shareholders would expect a special one-time dividend down the road from whatever is left of the company as the result of a possible “reverse spin” involving its stake in China e-commerce leader Alibaba ( BABA ). Verizon Balance Sheet May Be Challenge Could a Verizon-Yahoo deal be do-able, given that Verizon’s balance sheet is somewhat stretched already? Credit rating agencies Standard and Poor’s and Moody’s have not commented on Verizon’s interest in Yahoo. Verizon debt has an investment-grade Baa1 rating. Verizon had $4.5 billion in cash on its balance sheet as of Dec. 31. Verizon bought out U.K.-based Vodafone Group ’s ( VOD ) 45% stake in their Verizon Wireless joint venture for $130 billion in 2014, adding a ton of debt. Verizon ended 2015 with $105.7 billion in net debt. Verizon expects the sale of residential wireline assets in  California, Florida and Texas to Frontier Communications ( FTR ) to close in late March. Verizon stated last year that it expects to garner $6.8 billion in net cash proceeds from the Frontier deal. Paying down debt had been Verizon’s priority. Verizon is expected to take part in a U.S. auction of TV broadcaster radio spectrum slated to start as soon as next month. In a research report Thursday, JPMorgan estimated that Verizon, despite talking down its interest in the auction, could spend $8 billion. Whatever Verizon does spend, it would not have to pay the government until year-end 2016 or later. At Barclays, analyst Amir Rozwadowski said the key to a Verizon-Yahoo deal, from a Verizon shareholder’s view, is whether “Verizon would be purchasing an attractive call option or an expensive declining business.” That depends in part on the valuation of Yahoo’s Internet business, as display advertising growth declines. UBS analyst John Hodulik said in a research report that “while Yahoo has had a mixed record transferring its success to mobile, the company remains the third-most-visited site for digital video.” Rozwadowski estimates Yahoo’s core 2016 EBITDA (excluding Yahoo Japan and Alibaba equity interests) at around $710 million. Depending on what EBITDA multiple Verizon were to pay, a deal might wind up costing the phone company in the mid-single-digit billions of dollars. Rozwadowski’s view: “We would consider a potential Yahoo acquisition as a ‘tuck in,’ with minimal financial impact and of small enough size that it would not derail any of the carriers’ operational or financial initiatives.”

Verizon: Yahoo Vulture Or White Knight Bearing AOL Synergies?

Yahoo ( YHOO ) stock slid 3% the past week, even though telecom  Verizon Communications ( VZ ) has talked up its interest in buying some Yahoo assets “at the right price.” That’s what Verizon CEO Lowell McAdam told CNBC’s Jim Cramer on a Feb. 5 broadcast of “Mad Money.” Then on Monday, reports surfaced that Verizon had put AOL Chief Executive Tim Armstrong in charge of exploring a Yahoo acquisition. Verizon acquired AOL for $4.4 billion, including about $300 million in AOL debt, in June. Yahoo shareholders may be unimpressed over what Verizon could pony up, some analysts say. Verizon paid about eight times EBITDA (earnings before interest, taxes, depreciation and amortization) for AOL. AOL’s Internet business, however, had been improving, unlike Yahoo’s. Verizon could be vulture-like and wait for struggling Yahoo to struggle more — Yahoo announced its first round of layoffs on Wednesday amid growing management defections. But analysts say Verizon hopes Armstrong can woo Yahoo on good terms. (Verizon hasn’t hired bankers and there have been no formal talks, according to reports.) If Yahoo sells off its core Internet operations, shareholders would expect a special one-time dividend down the road from whatever is left of the company as the result of a possible “reverse spin” involving its stake in China e-commerce leader Alibaba ( BABA ). Verizon Balance Sheet May Be Challenge Could a Verizon-Yahoo deal be do-able, given that Verizon’s balance sheet is somewhat stretched already? Credit rating agencies Standard and Poor’s and Moody’s have not commented on Verizon’s interest in Yahoo. Verizon debt has an investment-grade Baa1 rating. Verizon had $4.5 billion in cash on its balance sheet as of Dec. 31. Verizon bought out U.K.-based Vodafone Group ’s ( VOD ) 45% stake in their Verizon Wireless joint venture for $130 billion in 2014, adding a ton of debt. Verizon ended 2015 with $105.7 billion in net debt. Verizon expects the sale of residential wireline assets in  California, Florida and Texas to Frontier Communications ( FTR ) to close in late March. Verizon stated last year that it expects to garner $6.8 billion in net cash proceeds from the Frontier deal. Paying down debt had been Verizon’s priority. Verizon is expected to take part in a U.S. auction of TV broadcaster radio spectrum slated to start as soon as next month. In a research report Thursday, JPMorgan estimated that Verizon, despite talking down its interest in the auction, could spend $8 billion. Whatever Verizon does spend, it would not have to pay the government until year-end 2016 or later. At Barclays, analyst Amir Rozwadowski said the key to a Verizon-Yahoo deal, from a Verizon shareholder’s view, is whether “Verizon would be purchasing an attractive call option or an expensive declining business.” That depends in part on the valuation of Yahoo’s Internet business, as display advertising growth declines. UBS analyst John Hodulik said in a research report that “while Yahoo has had a mixed record transferring its success to mobile, the company remains the third-most-visited site for digital video.” Rozwadowski estimates Yahoo’s core 2016 EBITDA (excluding Yahoo Japan and Alibaba equity interests) at around $710 million. Depending on what EBITDA multiple Verizon were to pay, a deal might wind up costing the phone company in the mid-single-digit billions of dollars. Rozwadowski’s view: “We would consider a potential Yahoo acquisition as a ‘tuck in,’ with minimal financial impact and of small enough size that it would not derail any of the carriers’ operational or financial initiatives.”

Nevada PUC Refuses Solar Grandfathering Bid; Sunrun Plans To Sue

Nevada regulators voted unanimously late Friday to slash net-metering payments without grandfathering existing solar-energy customers, despite opposition from 55,000 Bring Back Solar Alliance supporters. Within an hour of the 3-0 vote by the Nevada Public Utility Commission, Sunrun ( RUN ) executives were already planning to file suit, Lauren Randall, the company’s public policy manager, told IBD. “Even NV Energy recommended grandfathering current solar customers for a period of 20 years, but once again, Governor (Brian) Sandoval’s commission gave the monopoly utility more than it asked for,” she wrote in an email. “This decision is clearly unjust and unacceptable for Nevadans. “We will sue to overturn the anti-solar rules, and we will win.” The decision follows a week of testimony, including commentary from Tesla Motors ( TSLA ) CEO Elon Musk, chairman of No. 1 solar installer  SolarCity ( SCTY ). Both Sunrun and SolarCity criticized the net-metering cut — payments that solar customers get for selling excess energy to utilities — and exited Nevada in December when the PUC first approved the new rates. Solar advocates’ hope momentarily gleamed last month when Warren Buffett’s Berkshire Hathaway ( BRKA )-owned utility, NV Energy, proposed a 20-year grandfathering caveat to the new solar rules. But Friday’s vote puts the final nail in Nevada’s solar coffin , according to Bryan Miller, Sunrun vice president of public policy and power markets. He’s also president of the Alliance for Solar Choice president. “(PUC Commissioner) Dave Noble was wrong when he predicted his initial order would not kill the industry,” Miller said in an email Thursday. “He has now flip-flopped and argues that the commission can legally kill the industry.” Nevada incentivized more than 17,000 residents to install solar, BBSA spokesman Bob Greenlee said in a statement Thursday. Since 1997, net-metering policies have required utilities to purchase excess power fed into the grid from solar customers at a retail rate. Under the new rules, the reimbursement rate will step down five times over 12 years to reach what the Nevada PUC calls a “cost-based structure.” Although TASC estimates that solar customers will still save about a third on their electric bills, the rate shift doesn’t allow them to recoup the costs of their systems, Greenlee said. Early Friday, he said the BBSA planned to cart “six wheelbarrows full” of signed commitment cards from supporters. “Fully 89% of Nevadans believe that the Public Utilities Commission made the wrong decision when it ended net-metering, refused to grandfather existing solar customers at their current rates and destroyed one of the fastest-growing solar sectors in the country,” Greenlee told IBD via email following the vote. Greenlee tallied 55,000 commitment cards — the same number of petition signatures needed to put the matter on a referendum ballot in November. The PUC, however, argued within its draft order Wednesday that grandfathering existing customers under the old rates would perpetuate the $16 million that utility customers now pay annually to subsidize solar customers. Proposals to delay the necessary correction in rates to a cost-based structure only serve to kick “the can down the road,” the PUC said. Over 40 years, the subsidy borne by non-solar customers would grow to $640 million. “These proposals do nothing to address the problem of antiquated rates that were instituted nearly 20 years ago to jump-start an industry,” the commission wrote. “The old net-metering rates are not reflective of accurate price signals or actual costs to serve.”