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Back To The Future – News And M&A

Is the Yellow Pages about to takeover Yahoo?

It’s classic ‘Back to the Future’ stuff when the company that used to print the Yellow Pages makes a bid for Yahoo, one of the first tech firms and most popular websites in the world.

Started by electrical engineering grad students at Stanford in 1994, and formerly known as “Jerry and David’s Guide to the World Wide Web,” it seems that another chapter in Yahoo’s history is about to be written, no matter who the winning bidder is.

Bloomberg is reporting that YP Holdings, the digital advertising business of what was Yellowpages.com, is going to submit a first-round bid to merge with Yahoo, citing sources. It’s not as odd as it initially sounds. YP, with a valuation of between $1 and $1.5 billion, is contemplating a Reverse Morris Trust deal structure for Yahoo that would see it spin off Yahoo’s core business and merge it with a smaller business, thereby creating a tax-free transaction.

Yahoo shareholders would retain holdings in the new combined company and have the capacity to benefit from future earnings growth. This could be attractive if they don’t believe a cash offer from Verizon – the current frontrunner – is high enough.

In essence, there are tax benefits in the carving up of Yahoo, and YP is the second to consider this deal structure after Time Inc, which has since abandoned the idea.

Goldman Sachs is advising YP, which is majority controlled by PE firm Cerberus Capital Management, on the strategic alternatives.

It seems potential buyers are looking at the big question that Yahoo’s board and management have struggled with: What sort of company is Yahoo exactly? What fits? And what would work?

And then there’s the even bigger question; will it be Yellow Yahoo or Yahoo Yellow? No doubt UK readers will come up with something much better, in keeping with the convincing vote for ‘Boaty McBoatface’ there this week, although we note that that moniker isn’t likely to float, despite public support.

Things aren’t just busy at Yahoo. The first IPO in the US tech sector so far this year is about to be priced.

Dell is floating SecureWorks, their cyber security division, and plans to price 9 million shares at a level that would give it a market cap of as much as $1.4 billion. It marks a good break from a stack of private funding in the sector and will be the first US listed tech IPO since Yirendai listed last December, according to Dealogic.

Investors will be watching closely to see how this goes and how the now more cautious market accepts the company’s story on profitability.

If the Australian experience is anything to go by, the tech IPO gates may well open in the US.

Logistics software group WiseTech Global saw its market value soar past A$1 billion when it listed on the Australian stock exchange recently. While investors have been generally cautious about similar tech IPOs, WiseTech bucked the trend. The reason for this, analysts say, is that it didn’t go to market too early, it’s big, global and profitable.

Marketing the tech firm that almost nobody outside of the logistics industry had heard of was a big task, but Asian and US investors joined locals in upping the appetite for the stock. CEO Richard White told the Australian Financial Review that his company’s technology can do for the logistics industry what Microsoft did for the office environment.

Another factor with this one? The fact that it had the real life founder and entrepreneur at the helm with a long-term view and skin in the game, making it stand apart from the private equity listings.

Valuations remain slippery in tech land though. One large US fund has just lifted the valuation of its stake in Dropbox and given a specific value, tech journal The Information reports.

Whilst mutual funds have marked down their stakes in Dropbox by as much as 59% below the $10 billion valuation last attributed to it when raising funds in 2014, MetLife, the largest life insurer in the US, has placed a specific figure on its stake in its securities filing dated Dec 31.

Its placed a $6.8 billion “strategic asset value” on Dropbox in a direct statement about what the fund thinks the San Francisco-based file hosting service might fetch if acquired. And while the tech journal writes it doesn’t want to attribute too much meaning to the disclosure, it notes its unusual nature.

MetLife didn’t disclose similar values for its other private tech investments and typically, tech valuations centre around how much revenue the company is expected to produce, rather than what it could be worth in an acquisition.

Concurrently, MetLife is carrying its Dropbox stake on the books at significantly below the $6.8 billion valuation level. Read into that what you will.


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